How to Spot ‘Misclassification’ in Two Easy Steps (This Is Important)
Misclassification is a serious issue for freelancers. In short, this occurs when you are hired by a company as an “independent contractor,” but the longer you work for the business, you suspect that you are being treated like the rest of the employees.
What’s the problem with misclassification? Isn’t it great to be connected with a workplace, have a community, and have the accountability of a boss and hierarchy? Isn’t it just a different form when tax season rolls around?
While it depends on your priorities, the answer overall is no. Misclassification is harmful to your business as a freelancer because it denies you some basic working rights.
It is also an epidemic that has large-scale tax law implications. The company that hired you as an independent contractor could be in serious trouble for misclassifying, and it’s better to avoid the situation than to try and rectify it once you’re involved.
The implication of misclassification, for you as the freelancer, is that you are not having income withheld for taxes, and you are not receiving benefits like a retirement account or health insurance. These are two important boons that employees enjoy in return for a reduction in freedom.
As an independent contractor, you deserve to either be hired as an employee and receive full benefits, or to be classified correctly as an independent contractor and treated thus.
Some long-term gigs are nebulous, and you can become extremely involved in a company as a freleancer, to the point that you may feel like an employee simply from familiarity. How do you know if you’re being misclassified at a current job, or if a potential gig is not classified correctly?
There are two easy “tells,” and these are the questions that you should ask yourself (or your interviewer):
Do you have to conform to all workplace schedules and rules?
Do you clock in and clock out at a specified time? Do you take a pre-appointed lunch time with all of the other employees? Do you have to attend all team meetings? Do you have to sit for employee evaluations with a boss? Do you have to follow extremely specific rules and regulations that are unique to the company? Do you have to work off the clock?
This is an issue because independent contractors are, by nature, free. You are empowered, by the government, to pursue your work in the way that you prefer. Of course, the way this manifests in the real world is that you may end up following some workplace rules, as you see fit, because they are convenient for you or contribute to the ease of your work.
However, if you notice that the business that wants to use you as an independent contractor treats its freelancers exactly like employees when it comes to schedule, expectations, and procedures, you may want to investigate further to make sure that you are not being misclassified.
Can you use your own methods or tools?
Sometimes there are larger governing bodies than the hiring business that dictates certain methods. An obvious example would be that, as a building contractor, you cannot use lead paint or asbestos in construction – it’s not up to you or the business that hired you. There are some methods and rules that apply to everyone.
However, the general idea of independent contracting is that you use your own methods and your own tools. This is the “independent” part of the “independent contractor.” As a freelancer, you should be trusted that you have the expertise to conduct your business in the way that you see fit.
Private music teachers should have their own sheet music. Photographers should use their own equipment. Accountants should own the correct bookkeeping software necessary for their work. The idea is that a freelancer should have the freedom to move from one job to another with all of the tools that they need.
Of course, there are gray areas and fine lines. You may be willing to make one or two exceptions in order to fit into a company culture as a freelancer. However, make sure that you are assessing the big picture of your role in the company, and decide, based on tax law, if the work that you do is truly independent or if you should be enjoying the same benefits as employees.