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Employee vs. Independent Contractor Classification
Posted by: | CommentsSO YOUR EMPLOYER MADE YOU AN INDEPENDENT CONTRACTOR AND DIDN’T PAY ANY FICA TAX:
HOW TO HAVE YOUR CAKE AND EAT IT TOO
by Robert Atkins Walker and Clifton L. Kling
I. Introduction
A. Purpose
Continuing controversy surrounds the employee versus independent contractor classification issue.1 To date, research on worker status has concentrated on the factors used by the courts and the IRS to determine whether workers are employees or self-employed independent contractors.2 Some research has addressed worker misclassification issues from the employer’s standpoint,3 but no article to our knowledge has specifically dealt with the misclassification issue from the employee’s perspective.4 We investigate the effects and remedies for misclassified employees because they typically are not in an advantageous or knowledgeable position to redress the misclassification.
We focus on four employee-related employment tax and benefit issues: (1) how misclassified workers may avoid paying any self-employment tax (SECA), (2) how they possibly may avoid paying the employee’s half of FICA tax as well, (3) how they may secure reclassification as employees through the help of the IRS – in recent years, about 90% of the Private Letter Rulings addressing the issue have classified workers as employees rather than independent contractors,5 and (4) how they may have their earnings record updated to obtain maximum Social Security benefits after retirement despite paying neither self-employment nor FICA tax on the misclassified earnings. The proper action for misclassified workers is to report their independent contractor earnings as wages and pay no self-employment tax. The following is an example of one such worker that one of the authors met during the writing of this article.