I’ve got a small print shop and they use this ‘contractor agreement’ to justify paying cash for the first 90 days, with no deductions and no overtime pay even if we work more than 40 hours. The schedule is fixed, 8-5, so it’s not like we’re freelancers or anything. This is in Shelby, NC.
So… bottom line… this can’t be legal, right? No loopholes or anything that makes this okay?
Arlen said:
So… bottom line… this can’t be legal, right? No loopholes or anything that makes this okay?
Hard to say for sure, but it sounds sketchy. Misclassifying workers is tricky, and if everyone’s treated the same way in those 90 days just without deductions, it’s probably not going to fly. Employers sometimes do this to cut down on paperwork if people don’t stick around. But if overtime isn’t paid during those 90 days, a wage complaint could be filed. And if they fire you, you could apply for unemployment. You can also file an SS-8 form with the IRS, which might make the company pay half the Social Security tax.
Yep, ‘under the table’ means just that… not on the books and not legal.
It’s mostly about tax laws rather than employment laws. The Fair Labor Standards Act doesn’t care how you get paid as long as it’s at least minimum wage and includes overtime if needed.
Noor said:
It’s mostly about tax laws rather than employment laws. The Fair Labor Standards Act doesn’t care how you get paid as long as it’s at least minimum wage and includes overtime if needed.
Sounds like an IRS audit could really cause trouble for them?
@Arlen
Actually, a state employment tax investigation can be even more costly than an IRS audit.
Nope, not legal.
Ellis said:
Nope, not legal.
So who’s in trouble here… the boss or both? The other workers don’t seem to realize there’s anything wrong.
Ellis said:
Nope, not legal.
So who’s in trouble here… the boss or both? The other workers don’t seem to realize there’s anything wrong.
The employer is on the hook for tax fraud, benefits fraud, misclassification, and wage theft. The employees could also get in trouble if they don’t report the income and pay self-employment taxes. But if they want to challenge their status, they can file form SS-8.
@Ellis
It could be benefits fraud and wage theft too. Details matter to really know since misclassification doesn’t always mean someone’s missing benefits or wage law compliance.
Noor said:
@Ellis
It could be benefits fraud and wage theft too. Details matter to really know since misclassification doesn’t always mean someone’s missing benefits or wage law compliance.
misclassification doesn’t always mean you lose benefits
Things like unemployment and Social Security are funded through payroll taxes, so if payroll isn’t recorded, they’re not funded. Federal benefits can be fixed with form 8919 if they’re reclassified with an SS-8.
@Ellis
Being misclassified doesn’t necessarily mean you lose unemployment. States can review the claim if you say you were misclassified, and if they agree, your unemployment benefits would be approved and the employer would owe back taxes. This is a common way employers get caught.
@Noor
That and when someone gets hurt on the job and files a worker’s comp claim. If the employer doesn’t have active coverage, they can face huge penalties.
Ellis said:
Nope, not legal.
So who’s in trouble here… the boss or both? The other workers don’t seem to realize there’s anything wrong.
I’d say it’s mostly the employer’s fault for taking advantage of workers.
The IRS also won’t be too happy with employees who skip reporting that income during those 90 days.
@Blair
Independent contractors are expected to make quarterly payments. The IRS will consider you one unless you request a ruling from them. Check out https://www.irs.gov/pub/irs-pdf/fss8.pdf.