Can a company pay you as a contractor but treat you as an employee?

Businesses constantly seek to maximize their profits while minimizing their expenses. At many organizations, the biggest ongoing costs stem from staffing liabilities. Employees come with many financial obligations.

Companies have to pay for workers’ compensation and unemployment insurance. They have to provide health coverage and possibly paid time off benefits. They also have to pay certain employment taxes on behalf of their staff.

Independent contractors or self-employed professionals, on the other hand, are much cheaper for companies to hire. They don’t have the same secondary expenses like insurance and benefits. They also have to pay their own employment taxes. Unfortunately, some companies inappropriately classify their workers as contractors while they continue to treat them like employees.

What is the difference between an independent contractor and an employee?

An employee enjoys an offer of indefinite employment, in most cases. Even seasonal employees can often transition to permanent positions at a company if they do an exemplary job. Independent contractors, on the other hand, often only have a role with the company for the duration of a specific contract or project.

More importantly, independent contractors are individuals who run their own businesses. They provide their own equipment and set their own schedules. They should not be subject to financial or scheduling micromanagement by the company that employs them. They should have the right to decline projects as they see fit.

The more control the company has over a worker and the stronger their presumption that they can depend on that worker regardless of their actual role, the more likely it is that that worker is an employee and not a contractor.

Neither tax forms nor an agreement outweighs how your employer behaves

When California companies misclassify their staff, they try to protect themselves. Misclassification doesn’t just make a worker vulnerable if they get hurt on the job or become unemployed. It also means that the company fails to pay certain taxes, which makes it a form of tax evasion or fraud.

There can be major financial and legal consequences for businesses that misclassify workers, so the companies that employ such practices will likely find a contract designating the worker as a contractor and have that individual fill out contractor tax forms. That paperwork alone doesn’t outweigh the nature of your relationship or the behavior of your employer, however.

Reviewing your employment records and contracts can give you a better idea about whether you have a claim for misclassification and a violation of your employment rights.