Many employers in Chicago and the rest of Illinois misclassify workers as independent contractors in order to avoid paying payroll taxes for those workers and providing them with employee benefits. While there is nothing wrong with the use of independent contractors, if your employer has misclassified you as an independent contractor, it may be denying you employee benefits that would otherwise be due. For example, if your employer provides group health insurance to employees, or has a retirement plan, you will miss out on participating in these plans as a result of the misclassification.
Contrary to popular belief, it is not the employer’s decision whether you are an independent contractor or employee. Whether you are truly a contractor or an employee is a question of law that depends on the facts and circumstances that essentially must answer the question: who directs and controls how your job is done? The IRS originally developed a 20-factor test to determine whether a worker is a contractor or employee. Rev. Rul. 87-41, 1987-1 C.B. 296. Because over the past 25 years, some of these factors have become less relevant, the IRS has simplified this test to a 3-category test of Behavioral Control, Financial Control, and the Relationship of the Parties.
It isn’t just the IRS that is interested in worker misclassification. The Employee Misclassification Prevention Act is a bill pending in both the House and Senate that would impose criminal penalties on employers that misclassify workers. S.3254, HR 5107. While this bill is currently stalled in Congress, you can expect as implementation of the Patient Protection and Affordable Care Act of 2010 is increasingly implemented, this bill will get more attention because employers will try to evade requirements to provide health insurance by misclassifying workers.
Several people have asked me: “What if I signed an agreement stating I am an independent contractor?” The answer is that it likely does not matter that you agreed to a certain employment status. An employer once tried to use this exact argument to avoid retroactively providing benefits to misclassified workers. In Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996), workers signed agreements labeling them as independent contractors instead of employees. After an IRS audit determined Microsoft misclassified the workers, the workers successfully sued Microsoft for denying them benefits during the time the workers were misclassified (including participating in a lucrative stock purchase plan). If you think you have been misclassified as an independent contractor and that misclassification resulted in denying you employee benefits, call an experienced ERISA lawyer.
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