Some employers have been taking advantage of employees by misclassifying
their status on the payroll as a 1099 instead of a W-2. The results are
advantageous for employers, but extremely detrimental to their workers.
Dishonest employers are notorious for running a payroll scam that can
end up costing you a fortune in taxes and cause other legal issues if
you fail to catch on to it. Misclassifying employees who normally are
considered W-2 as independent contractors on a 1099 is illegal and
considered fraud. The IRS is cracking down on these scam artists who
attempt to save a buck at their employee’s expense. With jobs being
difficult to come by during the recession, it appears as if more
employers are taking advantage of grateful job hunters who are happy to
be on the payroll regardless if they are taken advantage of, but don’t
think that you have to put up with it.
An employee is someone who works under the direct supervision of an
employer. Although there are some who may work at home, they are
generally required to perform their duties in an office or assigned area
and keep a regular schedule that is approved by the employer. Their
hours are logged so they may be paid accordingly. Other characteristics
of a standard employee on payroll are having regular reviews, pay
increases, meetings, and being paid on a weekly, bi-weekly, or monthly
basis. An employee is treated as a W-2 on the payroll, meaning it is the
employer’s responsibility to pay certain taxes as well as Medicare. An
employer must also supply certain benefits such as holiday pay, sick
days
An independent contractor, on the other hand, provides a one-time
service or product within a set deadline, but with little to no
regulations on how the individual’s time is allocated, when the work is
scheduled, or how it is performed. They don’t work under the employer,
and therefore are not on a regular payroll classification. Because an
independent contractor is not a normal employee, they are not entitled
to any benefits and the employer is not responsible for deducting any
taxes. At the end of the financial year, the independent contractor is
required to pay their own taxes, but can use deductions to help reduce
the overall amount so that it is more or less equal to that if they were
under normal W-2 employment.
If you’re unclear on your classification, it is important to have it
sorted through as soon as possible to avoid difficulties during tax
season. An employer who knowingly misclassifies you can be difficult to
reason with, and may try to convince you to stay on a 1099 form. While
it may seem easier to just deal with it, making adequate deductions can
be practically impossible as regular employees have minimal expenses.
You also won’t have any protection if you get fired or laid off, will
not be eligible for unemployment, and most certainly won’t see any
severance packages. If speaking with your employer or the manager of
operations does not provide any insight, you can contact the IRS
directly to help you determine your rightful status. It is considered
fraud and any guilty employer will face stiff charges.
