Proper classification of workers is a critical issue in employment law. Mislabeling employees as independent contractors can lead to wage disputes, tax penalties and even federal investigations. Employers may also face lawsuits related to unpaid overtime or lack of benefits.
Many misclassification problems stem from misunderstanding how the law defines employees and independent contractors. While job titles and agreements matter, the actual nature of the working relationship is what counts under employment law standards.
Job misclassification examples
Employers should carefully assess working arrangements to avoid common misclassification scenarios. The following examples highlight key situations where job misclassification may occur:
- Independent contractor labeled by agreement: A business signs a contract labeling a worker as an independent contractor, but the individual performs tasks under direct supervision, using company equipment and has a regular schedule. Under employment law, this arrangement likely qualifies the worker as an employee.
- 1099 worker doing employee-level tasks: A worker receives a 1099 form but is required to attend team meetings, follow detailed procedures and cannot work for other companies. Despite the tax classification, the relationship may reflect employee status and raise compliance concerns.
- Commission-based sales roles: A salesperson is paid solely by commission and given the title of contractor. However, the company controls how sales are made, sets targets and disciplines for missed quotas. These factors may indicate an employment relationship subject to wage and hour rules.
- Gig worker with long-term engagement: A person works for a delivery platform regularly over a long period and is restricted in setting their hours or prices. Courts and agencies may find this consistent with employee status, especially if the company maintains control over daily operations.
Misclassification can be costly for employers, especially if it affects multiple workers or continues unchecked. Penalties may include back pay, interest and fines from federal or state agencies. Seeking legal guidance is an important step for employers who want to review their classifications and reduce potential liability.