Author Topic: Employee misclassification?  (Read 1640 times)

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Employee misclassification?
« on: October 13, 2022, 02:59:42 PM »
Backstory:
I'm seeking advice as to whether I may or may not be misclassified as a 1099 through my part time gig/for fun job. I am categorized  as a private contractor, but it seems like they're just using that as a means to not pay me. I've been working for them for about two years and it brings in anywhere from a couple hundred bucks to over $1k some months. It is kind of niche -- the sales folks have specialized knowledge and the entire business model hinges on interactions with/sales generated by the specialists. I'll provide as much detail as I can without outing the company. I am open to suggestions and learning something new -- or changing my understanding of the situation. I'm not sure where to start, but here goes...

Red flags that got me thinking about this:
  • Private contractors set their own hours. I am allowed to select predetermined 3 hour blocks/shifts. If I log in late to a shift, or miss a shift I am penalized or get a ding on my record. I can't leave early/log off early meaning that I need to stay near my phone or desk in case a lead pops up.
  • The nature of the role is that I could get pinged any time to speak with a client whether I am on a shift or not. Shifts are supposedly meant to acquire leads, but a lead can choose to respond or reengage at any time. If I do not respond to the lead in a timely manner, they could be transferred to another person. This means I am at the mercy of the customer and their timeline/convenience.
  • This role was originally $20/hour plus commission, then went to a minimum of $x per shift guarantee or commission (whichever is greater), and is currently fully commission-based. This means I can take a shift and earn no money, or earn less than minimum wage.*
  • I get paid a few bucks for my first interaction with a lead regardless of length or duration, but any subsequent interaction is unpaid. I could literally exchange messages with someone for days on end and earn nothing additional unless I sell them something. This happens.

*I can -- and have -- sat at my desk entire shifts and received no leads or made any money. I feel like that's illegal. If I worked at a physical store and no one came in to purchase anything, the business still owes me for my time/opportunity cost.

Takeaways
Previously, it was worth my time to do because I could make $60 for three hours of sitting in front of my computer guaranteed. Recently I've been making less than minimum wage -- the last shift is just another example of earning $0. This has happened pretty frequently these days which may be a sign of people tightening up on their discretionary spending, but I digress.

The point is, if I am right, there is a decent amount of money to be back paid and it would benefit my fellow colleagues that are being taken advantage of. I'm fine burning the bridge since my perception is they're not paying me for my expertise, not paying me for my time "on the clock," and they're not paying me for my time outside my shift unless I generate a sale.

I'll do my best to answer any follow up or clarifying questions.

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: Employee misclassification?
« Reply #1 on: October 13, 2022, 03:30:04 PM »
You're an employee. Your relationship fails the behavioral test.

Imagine hiring an electrician to swap out an electrical panel and telling them that you were going to keep a record of their attendance and that they had to be there for exactly 3 hours and couldn't be late or leave early.

Dollar Slice

  • Walrus Stache
  • *******
  • Posts: 9613
  • Age: 46
  • Location: New York City
Re: Employee misclassification?
« Reply #2 on: October 13, 2022, 03:46:55 PM »
When I worked for a small business, we were audited by the Department of Labor (honestly a total joke for a company with like five employees and a couple of contractors, meanwhile there are huge companies out there getting away with murder). I was shocked at how much they leaned towards classifying people as employees. We actually got fined and told that one of our contractors had to be reclassified as a part-time employee even though he set all his own hours and only worked for us nine months a year (and we would have preferred 12 months/assigned hours). From what they told us I think you are 100%.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #3 on: October 13, 2022, 03:48:12 PM »
You're an employee. Your relationship fails the behavioral test.

Imagine hiring an electrician to swap out an electrical panel and telling them that you were going to keep a record of their attendance and that they had to be there for exactly 3 hours and couldn't be late or leave early.

Thanks for the reply! That makes sense. What would the next logical step be? State labor board? Lawyer? Something else?

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: Employee misclassification?
« Reply #4 on: October 13, 2022, 04:10:26 PM »
You're an employee. Your relationship fails the behavioral test.

Imagine hiring an electrician to swap out an electrical panel and telling them that you were going to keep a record of their attendance and that they had to be there for exactly 3 hours and couldn't be late or leave early.

Thanks for the reply! That makes sense. What would the next logical step be? State labor board? Lawyer? Something else?

Someone more knowledgeable can answer that. These links might be helpful.

https://www.irs.gov/pub/irs-pdf/fss8.pdf
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Quote from: irs
If it is still unclear whether a worker is an employee or an independent contractor after reviewing the three categories of evidence, then Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax WithholdingPDF, can be filed with the IRS. The form may be filed by either the business or the worker.

reeshau

  • Magnum Stache
  • ******
  • Posts: 2509
  • Location: Houston, TX
  • Former locations: Detroit, Indianapolis, Dublin
Re: Employee misclassification?
« Reply #5 on: October 13, 2022, 05:58:29 PM »
I think you have a pretty strong case.  I have no specific knowledge of the legal language, but worked in IT, so we certainly had a lot of directives from HR on the use of contractors.

One angle, at least from my perspective, is the length of time you have been at this, too.  We would get a lot of grief if we kept a contractor more than one year.

One other angle:  this seems like a smaller outfit, but do you ever attend "employee meetings"?  That is, either meetings actually entitled employee or all-hands meetings, or meetings where employee topics are discussed. (policies, benefits, etc.)  Your attendance, particularly mandatory attendance, at these could be a good piece of evidence.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #6 on: October 14, 2022, 01:08:22 PM »
I think you have a pretty strong case.  I have no specific knowledge of the legal language, but worked in IT, so we certainly had a lot of directives from HR on the use of contractors.

One angle, at least from my perspective, is the length of time you have been at this, too.  We would get a lot of grief if we kept a contractor more than one year.

One other angle:  this seems like a smaller outfit, but do you ever attend "employee meetings"?  That is, either meetings actually entitled employee or all-hands meetings, or meetings where employee topics are discussed. (policies, benefits, etc.)  Your attendance, particularly mandatory attendance, at these could be a good piece of evidence.

There are some meetings/trainings announced that are not mandatory, while there have been others that we have been "strongly encouraged" to attend. I don't recall being paid for my time for those, either.

There's also a shareholder program that's offered to us if we reach certain objectives. I'm not sure why they would provide ownership opportunities to non-employees/contractors.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #7 on: October 14, 2022, 01:36:31 PM »
When I worked for a small business, we were audited by the Department of Labor (honestly a total joke for a company with like five employees and a couple of contractors, meanwhile there are huge companies out there getting away with murder). I was shocked at how much they leaned towards classifying people as employees. We actually got fined and told that one of our contractors had to be reclassified as a part-time employee even though he set all his own hours and only worked for us nine months a year (and we would have preferred 12 months/assigned hours). From what they told us I think you are 100%.

That's good to know. Another tidbit is a 300% YoY growth which I don't think would be feasible if they actually had to pay their workers. Albeit I'm not sure growth = profits, but I'm sure it doesn't hurt the bottom line.

LightStache

  • Pencil Stache
  • ****
  • Posts: 760
  • Location: California
Re: Employee misclassification?
« Reply #8 on: October 15, 2022, 08:05:12 AM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

JAYSLOL

  • Handlebar Stache
  • *****
  • Posts: 2137
Re: Employee misclassification?
« Reply #9 on: October 15, 2022, 03:39:40 PM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

+1

Unless the commission is good enough that the sales wind outweigh the unpaid time, walk away and find a sales job or other support position that pays you fairly.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #10 on: October 15, 2022, 05:15:33 PM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

This is how the company generates revenue. It IS a big money maker for them. It is just a part-time (but seemingly always on call) job for people in my position. The reason why a person would go to the company's platform versus just buying something elsewhere online is for the experience of working with a knowledgeable person in their area of interest. The relationship with us is their entire business model. If a company cannot pay their workers fairly, I'd wager they shouldn't be in business. Yes, it might suck for the short term, but I'd wager companies like this aren't good for society, or to have in one's portfolio.

I appreciate the perspective -- it's sobering to point out that I could be the catalyst for people losing a stream of income. However, I think it's inevitable, if not already in the works. I certainly can't be the only one feeling this way or with some understanding that I should be paid for my time. Regardless, I'm not going to be guilted* into letting an organization do something illegal on the grounds that the lesser evil is letting them get away with it and profit through our exploitation. Is this the next Enron? No, but had they been playing by the rules they probably wouldn't be in business.

*When I read the post mentioning this, I definitely did feel guilt and kind of scared. Did I lose some sleep last night? Yeah, a little. After mulling it over today, I don't see how this is any different than standing up to a bully -- and we'd all agree that people should stand up to bullies... right? If your loved one shared this experience with you rather than an internet stranger, would your perspective change?


Villanelle

  • Walrus Stache
  • *******
  • Posts: 6654
Re: Employee misclassification?
« Reply #11 on: October 15, 2022, 05:25:25 PM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

I strongly disagree with this.  It isn't the OP that would be responsible for cutting off these jobs.  It would be the employer who wants to be able to continue to take advantage of employees, as they have been for years.  Calling them out on their illegal behavior is not unreasonable.  If they react by cutting jobs, that's unfortunate but on them, not on the OP.  And those employees, who are currently getting screwed, would leave with fat settlements to help cushion the blow of any potential lost jobs. 

Gremlin

  • Pencil Stache
  • ****
  • Posts: 581
Re: Employee misclassification?
« Reply #12 on: October 15, 2022, 05:46:12 PM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

I strongly disagree with this.  It isn't the OP that would be responsible for cutting off these jobs.  It would be the employer who wants to be able to continue to take advantage of employees, as they have been for years.  Calling them out on their illegal behavior is not unreasonable.  If they react by cutting jobs, that's unfortunate but on them, not on the OP.  And those employees, who are currently getting screwed, would leave with fat settlements to help cushion the blow of any potential lost jobs.
THIS!  100% THIS!  You are NOT responsible for any actions, not downstream consequences, from your employer not following the rules.

Runrooster

  • Bristles
  • ***
  • Posts: 493
Re: Employee misclassification?
« Reply #13 on: October 15, 2022, 06:08:23 PM »
Your job description reminds me of being a part time, seasonal tax preparer. I am paid as a contractor even though I have zero control over my schedule ( other than basic telling my boss when I cannot work) or my job. They provide the location expenses and usually cover all training. They often provide food. I am paid a base pay that is less than minimum wage and a small percentage commission. (Think about that before you take your taxes to a chain firm)

The first point is that I can deduct mileage and other expenses to the limited degree there are any since it’s a Schedule C job. I do have to pay higher taxes (15% self employment vs 7.5%). Secondly, the first week I did this I pointed to minimum wage laws and my boss accurately responded that those don’t apply to seasonal workers or small firms, which it sounds like you are as well. I don’t know the pay structure of Mary Kay but I’d bet dollars to donuts that like you it’s all commission. Nothing illegal going on there.

I don’t know if you’re not a great salesman or the job stinks, either way I’d suggest you quit.

I read cursorily that Biden is proposing changes to gig workers to make them employees with benefits. I doubt that will change the lives of people working less than 20 hours a week.

ETA: when I was starting, 6 years ago, my bosses took a poll as to whether we wanted to be W2 or 1099. I wanted them to pay Medicare and fica, other people wanted to deduct expenses. W2 is a hassle because of withholding payroll taxes, expensive to an employer for bookkeeping costs.
« Last Edit: October 16, 2022, 09:55:42 AM by Runrooster »

yachi

  • Handlebar Stache
  • *****
  • Posts: 1141
Re: Employee misclassification?
« Reply #14 on: October 15, 2022, 10:48:00 PM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

I strongly disagree with this.  It isn't the OP that would be responsible for cutting off these jobs.  It would be the employer who wants to be able to continue to take advantage of employees, as they have been for years.  Calling them out on their illegal behavior is not unreasonable.  If they react by cutting jobs, that's unfortunate but on them, not on the OP.  And those employees, who are currently getting screwed, would leave with fat settlements to help cushion the blow of any potential lost jobs.
THIS!  100% THIS!  You are NOT responsible for any actions, not downstream consequences, from your employer not following the rules.

I agree with these points.  I don't see them going back to any of the previous styles of working if they need to get away from 1099's.  Having the benefit of OP's response regarding the importance of the job, I would say that the company would probably decide to structure this position differently.  I could see them bringing in as many people full time as they need to cover those 3 hour blocks/shifts.  If those shifts are mostly spent waiting for phone calls, they would add related office tasks to fill the time spent waiting. I would think they'd still keep the commission-based pay to encourage engagement of clients outside of office hours.  I think going back to paying an hourly wage for the 3-hour blocks/shifts would make the position more like an employee, not less.

When and where to do the work is one category of the level of instruction that would lead to the work being W2 instead of 1099, but I think there are legitimate 1099 situations where a company does direct when to do the work.  For example, language interpretation for a courthouse, or other business can only happen when the parties requiring the service are trying to talk to each other.  Also some types of IT outsourcing require availability during office hours (I'm imagining a situation where a bank or other non-IT business needs some IT services).  In construction, it's common for both the owner and Contractor to impose work hour limits on a jobsite.

Have you had a look at the IRS website?  https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee  The links under the Common Law Rules are particularly good.
It makes several points that I see backed up in your posts, for example:
"Employee benefits ... Businesses generally do not grant these benefits to independent contractors"
"If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities.  For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship."  -- it's interesting they mention attorneys here, because lots of other companies hire attorneys as 1099 work, but their function is as a supportive role, not the main aspect of the business

You mentioned about the possibility of working long hours and ending up with low pay, but "having the possibility of incurring a loss indicates that the worker is an independent contractor."

But very related to your concern over the 3-hour shift blocks, and rating system, is it shows a degree of instruction missing from 1099 relationships "The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right."  If you're being paid only by commission when products are purchased through you (the results), then you should have the ability as a 1099 person to stop doing those 3-hour shifts and not be penalized.  Because the 3-hour shifts are details of how the work is performed.

I'm having a difficult time understanding how these 3-hour shifts work, but if it's a key to their business model that this period be staffed by you or another part time fellow, than I think that points to an employer-employee relationship.  I believe, but haven't seen it in the IRS link, that the fact that they need multiple people in your position also points to an employer-employee relationship. 

LightStache

  • Pencil Stache
  • ****
  • Posts: 760
  • Location: California
Re: Employee misclassification?
« Reply #15 on: October 16, 2022, 07:56:37 AM »
If you're right and file a complaint, don't assume that you and your colleagues will be reclassified as employees and then continue working.

The position, as you describe, seems like a bad deal for you, but also not a big money maker for the company. If the company has to reclassify you, they may pay a settlement for back pay, but then decide it's not worth continuing those positions as employees. So you all might get a chunk of money up front, but cutoff the future revenue.

I personally wouldn't want to be responsible for cutting that opportunity off for my colleagues. In your shoes I'd just walk away and chalk up the wasted time to a learning mistake.

This is how the company generates revenue. It IS a big money maker for them. It is just a part-time (but seemingly always on call) job for people in my position. The reason why a person would go to the company's platform versus just buying something elsewhere online is for the experience of working with a knowledgeable person in their area of interest. The relationship with us is their entire business model. If a company cannot pay their workers fairly, I'd wager they shouldn't be in business. Yes, it might suck for the short term, but I'd wager companies like this aren't good for society, or to have in one's portfolio.

I appreciate the perspective -- it's sobering to point out that I could be the catalyst for people losing a stream of income. However, I think it's inevitable, if not already in the works. I certainly can't be the only one feeling this way or with some understanding that I should be paid for my time. Regardless, I'm not going to be guilted* into letting an organization do something illegal on the grounds that the lesser evil is letting them get away with it and profit through our exploitation. Is this the next Enron? No, but had they been playing by the rules they probably wouldn't be in business.

*When I read the post mentioning this, I definitely did feel guilt and kind of scared. Did I lose some sleep last night? Yeah, a little. After mulling it over today, I don't see how this is any different than standing up to a bully -- and we'd all agree that people should stand up to bullies... right? If your loved one shared this experience with you rather than an internet stranger, would your perspective change?

Sure if you believe that employee classification rules are the apex of ethics considerations and that your colleagues' livelihoods are subordinate, go ahead and pull that trigger David.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #16 on: October 16, 2022, 08:45:11 AM »
@LightStache Who is David? Was that an attempt to identify me personally or something?

Runrooster

  • Bristles
  • ***
  • Posts: 493
Re: Employee misclassification?
« Reply #17 on: October 16, 2022, 08:56:05 AM »
@LightStache Who is David? Was that an attempt to identify me personally or something?

David and Goliath is how I read it.

nexus

  • Pencil Stache
  • ****
  • Posts: 825
  • Age: 33
Re: Employee misclassification?
« Reply #18 on: October 16, 2022, 09:02:19 AM »
@LightStache Who is David? Was that an attempt to identify me personally or something?

David and Goliath is how I read it.

Ah that makes sense, thank you.

Runrooster

  • Bristles
  • ***
  • Posts: 493
Re: Employee misclassification?
« Reply #19 on: October 16, 2022, 09:32:33 AM »
Have you sat down and added up how much back pay you lost?  It sounds like the fully commission base is recent. Also, if you spent those 3 hours starting leads, would that put you in the ballpark of minimum wage?  How many leads is that, 5/hr?  I’m in a high wage area, but it’s still not $20/hr.

Serious question: have you brought your concerns to management without making it about employee classification?  Do coworkers have the same issue?  If you are crucial or the problem is pervasive, they may have suggestions for you or consider going back to the minimum wage they had before.

“ If I worked at a physical store and no one came in to purchase anything, the business still owes me for my time/opportunity cost. ”

But you’re NOT at a physical store, you’re at home in your Jammie’s, making chili or doing laundry with your phone handy. It doesn’t sound like you spend 3 hours cold calling, which would a. Be worth paying you and b. Would net you that wage under current job.
« Last Edit: October 16, 2022, 10:15:50 AM by Runrooster »

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: Employee misclassification?
« Reply #20 on: October 16, 2022, 02:27:26 PM »
Companies that don't pay their fair share of taxes are taking from all of us.

If the OP is wrong, the OP is out a job. If the OP is right, the company owes backpay and will have to rethink how it uses its new employees.

The final arbiter for determining employee status is the IRS or tax court. Form SS-8 lets the IRS do its job.

YttriumNitrate

  • Handlebar Stache
  • *****
  • Posts: 1836
  • Location: Northwest Indiana
Re: Employee misclassification?
« Reply #21 on: October 16, 2022, 02:35:46 PM »
I may or may not be misclassified as a 1099 through my part time gig/for fun job ...  I'm fine burning the bridge since my perception is they're not paying me for my expertise, not paying me for my time "on the clock," and they're not paying me for my time outside my shift unless I generate a sale.

It sounds like your fun job is likely about to become not so fun.

 

Wow, a phone plan for fifteen bucks!