Independent contractors have few rights except the right to be paid what they were promised. Many workers who are called independent contractors are really employees – and deserve to have the rights of employees.
If you get a 1099 tax statement (instead of a W-2) and don't get taxes taken out of your check, you are being treated as an independent contractor.
Workers lose many advantages and protections when they are not treated as employees. They lose:
- rights to overtime pay
- rights to minimum wage
- rights to Workers' Compensation
- rights to unemployment insurance
- protection against discrimination
- right to union protection
- employer contribution to social security (so the worker pays twice as much)
The company may be avoiding treating the workers the same as they treat their employees (providing health insurance, pension, vacation and holiday pay), although these are not legal requirements.
There are two main tests used to decide if a worker is an independent contractor or employee. The Internal Revenue Service uses a "right to control test." The Fair Labor Standards Act (FLSA) uses an "economic reality test." All of the answers to the tests are looked at together to evaluate a worker's status – one answer doesn't decide it either way. You can get a general idea of how status (independent contractor vs. employee) is decided by reading these tests.
Workers who think that their boss is wrong to treat them as independent contractors can get advice from a Worker Center or contact the Department of Labor. For unemployment benefits, an IRS determination is accepted by most states. File the SS-8 form with the IRS and you should get a decision in 6 weeks.
Also, find out if your state gives independent workers more rights or uses a different test to decide who can be classified as an independent contractor.