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What are the potential losses if an employer misclassifies you as exempt?

On Behalf of | Jan 6, 2021 | Wage & Hour Law

Most of the time when you start working for a company, you become an employee. Employees have certain rights and are afforded certain protections under the law. Overtime wage protections, minimum wage protections, workers’ compensation, and required meal and rest breaks are all California state protections that benefit employees.

Sadly, some companies will go to extreme lengths to try to minimize the cost of having employees. Companies might even hire workers, have them fill out tax forms as though they are independent contractors, then treat the workers as employees. This is known as employee misclassification, and it is a serious issue that affects the rights of thousands of California workers.

In far too many cases, employers classify workers as independent contractors (or “exempt“) to avoid legal and financial obligations to those workers. So how might a misclassification affect your income and benefits?

Misclassification and how it affects overtime pay

When a company hires you as an independent contractor, the company may not be required to pay you overtime wages if you work more than 8 hours in a day or more than 40 hours in a week. That could deprive you of income that you rightfully earned.

Additionally, the company might pay you by each completed project instead of for the hours you actually worked. You might get paid so little that it does not actually amount to minimum wage when compared to the amount of time you spent on the project.

Misclassification affects your taxes

When a company hires employees, the company pays payroll taxes. When a company hires you as a contractor but treats you as an employee, the company passes those tax expenses on to you. You will have to pay substantially more out of pocket to meet your tax obligations than you would if properly classified as an employee.

There are other risks as well, such as not getting workers’ compensation benefits if you get hurt on the job. Especially if your employer has habitually misclassified employees, it may be time to look into whether bringing a misclassification claim would benefit you and your co-workers.