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Employee, Independent Contractor, Exempt: You May Be Misclassified

Topics: Current Events

Unfortunately, it is much too common for employers to misclassify their employees. This inaccurate and inappropriate reporting of job classes and responsibilities results in workers losing benefits and monies owed. Understand the difference between employees, independent contractors, exempt, and non-exempt workers to protect your rights.

(Photo Credit: Darius/Flickr)

Independent Contractor or Employee?

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Independent contractors are self-employed. If you are an independent contractor, the IRS expects you to pay self-employment taxes.

Some employers misclassify employees as independent contractors to save tax money. If you are classified as an independent contractor, your employer does not take taxes out of your paycheck. Instead of a W-9, you receive I-99 at the end of the tax year.

Professionals who sell their services to clients are independent contractors. One test the IRS uses to determine the difference between an independent contractor and an employee is that an independent contractor controls everything except the end results of work product. That means if you were required to be at work from 9 to 5 and sit in a chair regardless of work load, you are not an independent contractor. If the person paying you to work controls how, when, and where you do the work you are not an independent contractor.

Just this past November, the Payroll Fraud Prevention Act of 2013 was introduced in the U.S. Senate. If it passes, greater penalties will be imposed on employers who intentionally missclassify employees as independent contractors.


Some employees are exempt from overtime. That means that there are people who are not independent contractors but who are also not entitled to receive overtime pay when they work more than 40 hours per week.

Just because you have a salary does not mean that you are exempt from overtime pay. Many employers, and employees themselves, incorrectly assume that receiving a salary exempts workers from receiving overtime pay. It’s not true, and it can be a very expensive mistake for your employer to make. Employers found guilty of wage theft because they misclassified nonexempt workers as exempt from overtime pay may be liable for two or three years back pay, attorney’s fees, and double damages. 

Whether or not a salaried employee is exempt from overtime depends on his or her job duties. If you are currently classified as exempt from overtime, you may look over job categories on the Department of Labor’s website.

Knowledge is power.

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Does an independent contractor need to be classified as exempt or non-exempt or are they in a sense “exempt”?

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