When is a low paid contractor on retainer actually an employee?

Question

Three years ago, I got hired as an independent contractor for a small company where we had a lot of contact with the owner.

Then, my contract expired and things started get a little funny from there.

• My boss didn't clearly lay out any terms after that point. He only stated that I could keep working for his company.
• I got paid exactly the same way when I was officially a contractor (same hourly rate, same stipend)
• I later found out that every one of his "employees" also works under a 1099, even if they have no longer have a definite contract with him. Nobody paid taxes for SS, insurance, etc.

Over a year later, he started not liking my performance (he felt I was working too slowly), but instead of firing me, he decided to pay me a fixed rate, and only give me small projects that maybe pay me monthly in the low 100s. That way he felt safer not taking the risk of paying me for each hour I worked. Any time he changed the terms on me, he did not have it written out on paper.

He also proposed an alternative. He wanted me to work for an "evaluation period" where I worked 30 hours a week, for $800 a month (this is below minimum wage in my state by the way), and THEN after he saw enough improvement, I'd work for base salary. He compared it to an internship. I found it ridiculous, that he would offer this idea after working for him for three years. It seems like a huge step backward.

I know I can simply look for another job, but after 10 months of unsuccessfully getting a job some place else I am stuck between a rock and a hard place. Realistically, my only options are to quit and endure having no job at all or work for him. I'd rather milk this job for all it's worth.

My questions:

• Since he is the one setting the hours and when/how much I get paid, does this make me an employee?
• Does he have any legal right to treat it as a low-pay internship, or is his proposal in clear violation of employee laws?

Answer 1

Since he is the one setting the hours and when/how much I get paid, does this make me an employee?

I'm assuming you're in the United States. It sounds like you and your co-workers are almost certainly employees for tax and social security purposes, not 'contractors'.

Any one of you would probably have a good chance of forcing the employer to retroactively pay the 7.5% social security taxes that he should have been paying all along instead of you.

The IRS and Social Security Administration will start this process on receipt of an SS-Form 8.

Here in Texas the Texas Workforce Commission might help you with stolen vacation pay, but that's something of a long shot if there is nothing in writing.

Does he have any legal right to treat it as a low-pay internship, or is his proposal in clear violation of employee laws?

He is possibility violating the federal minimum wage laws, the Federal Department of Labor can help you determine if this is the case.

Answer 2

I'm assuming you're also working under a 1099 and managing your own taxes/filing quarterly.

If you're working as an independent contractor, then you're under your own responsibility to manage your pay. You're not an employee unless you're receiving a W-2.

I suggest getting everything in writing from now on. If he absolutely will not allow you to work for a higher rate, you will have to make that decision for yourself.

If you work on a pay-for-deliverables basis, that essentially removes most of your protections. Whether you take 1 hour or 100 hours to complete a task is up to you.

In any case, I find this insulting. This guy is absolutely taking advantage of you. Keep trying to find alternative employment. I suggest vworker.com