Company wants to give me a 1099, not a W-2 – is this legal?
Q: I have been working as a caregiver for a healthcare agency in Los Angeles. My boss talked to me about signing an independent contractor agreement which will make me a 1099 worker. I was told that being on 1099 allows me to take home all my pay with no withholdings. I have been a caregiver for 10 years and I have always received a W-2. Is what my boss trying to do legal? What do I need to know about independent contractor agreements to make a good decision about signing?
A: There are several things you should know about being classified as an “independent contractor” (IC) or 1099 worker. First of all, ICs are not considered employees and do not have the same rights as employees.
Unlike employees, ICs do not have to be paid minimum wage, overtime, or missed breaks. ICs are not entitled to benefits such as health insurance, retirement or pension benefits. ICs are not entitled to reimbursements for business expenses. These expenses may include fuel, insurance, living, and other travel expenses; purchasing supplies, tools, materials, or equipment such as cell phones related to work. Employees are entitled to reimbursements if they incur these business expenses.
ICs are also not entitled to workers’ compensation protection. When employees are injured at work, workers’ compensation benefits provide them medical treatments and disability payments. If ICs are harmed at work, they’re on their own and the company that hired them are not liable for any of their injuries.
It might sound good to receive pay that has no withholdings like taxes. However, at the end of the tax year, the company will still issue an IRS form 1099. This means the worker will still have to pay taxes on their wages.
Companies cannot classify workers as ICs just because it wants to. The status of a true independent contractor is determined by law. The California Supreme Court and lawmakers have outlined what is called the ABC standard for properly classifying a worker as an independent contractor. If you are a worker being asked to sign an IC agreement, ask yourself the following questions:
(A) Am I free from the control and direction of the company in how I do the work?
(B) Am I doing work that is outside the usual course of the company’s business? and
(C) Do I have my own business or established trade or occupation that I normally do which is the same type of work performed for the company?
If your answer to all of the questions above is a No, then you are more likely an employee than an IC. Specifically under test B, a worker is presumed to be an employee but may be classified as an independent contractor only if “the worker performs work that is outside the usual course of the hiring entity’s business.” This means the ABC test presumes a worker hired by a company is an employee and it is the company’s burden to prove that the worker is an independent contractor. If the company fails to show that the worker satisfies each of the three criteria, the worker must be classified as an employee, not an independent contractor.
Companies have misclassified nurses, caregivers, drivers, appraisers, technicians, and janitors as independent contractors even though they were in fact employees. Such misclassification is unlawful and entitles misclassified workers to remedies, including back wages, interest, liquidated damages, and penalties, among others. Workers should not hesitate to consult with experienced employment attorneys to determine if they are really employees entitled to these remedies.
The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com. [For more than 25 years, C. Joe Sayas, Jr., Esq. successfully recovered wages and other monetary damages for thousands of employees and consumers. He was named Top Labor & Employment Attorney in California by the Daily Journal, consistently selected as Super Lawyerby the Los Angeles Magazine, and is a past Presidential Awardee for Outstanding Filipino Overseas.]