Worker misclassification occurs when a company treats someone as an independent contractor who is legally an employee. It matters because many workplace protections apply only to employees, not independent contractors. 

If a company classifies you as an independent contractor, you may be denied rights and benefits that employees receive, such as overtime pay, minimum wage protections, paid leave, unemployment benefits, and workers’ compensation coverage. But an employer calling you an independent contractor doesn’t necessarily mean it’s right. 

If you were told to create a limited liability company (LLC), obtain a business license, or accept an independent contractor designation before you could work, the paperwork may not tell the whole story. Under many laws, a worker’s legal classification depends on the realities of the relationship, rather than labels. 

What Does It Mean to Be Misclassified as an Independent Contractor? 

Being classified as an independent contractor can mean missing out on workplace protections that employees take for granted. 

For example, employees are often entitled to overtime pay when they work long hours. A worker classified as an independent contractor may perform the same work but receive no additional compensation for those extra hours. 

In California and other states, employees are entitled to reimbursement for business expenses. If you use your personal vehicle to make deliveries and you’re classified as an employee, you may be owed payments for gas, maintenance, and wear and tear. If you’re an independent contractor, you may have to absorb these costs. 

There is no single test that applies in every situation. Because the legal analysis can vary depending on the jurisdiction and the law at issue, the specific facts of the working relationship are often critical. 

Can an Employer Force You to Create an LLC? 

A company might require workers to form an LLC to work for it. An LLC is designed to separate someone’s personal finances from those of their business.  

Companies sometimes require workers to operate through LLCs because they view the relationship as one business providing services to another, rather than a company employing an individual. Creating an LLC can make the relationship appear to be one business providing services to another and obscure the reality that it’s a company employing a worker. 

Why Your Job Title or Contract May Not Tell the Whole Story 

A worker can be called an independent contractor while performing work under conditions that resemble employment. 

One of the hallmarks of being an independent contractor is autonomy. When a company controls how someone does their work, that is more like employment. 

For example, a company may set schedules, assign work, monitor performance, require compliance with detailed procedures, or retain significant control over how work is completed. In those situations, the contractor label may not truly apply. 

What If I Had to Pay to Become an Independent Contractor? 

Creating an LLC, buying or leasing equipment, obtaining licenses, maintaining insurance, and paying for gas and vehicle maintenance are costs that independent contractors are often expected to cover themselves. 

But having to bear these costs doesn’t automatically mean you’re an independent contractor. In California and some other states, employers are supposed to reimburse business expenses. As a result, being misclassified as an independent contractor could mean you’re paying more than you should. 

How Misclassification Can Affect Your Pay 

Misclassification can have major financial consequences. In addition to expense reimbursement, minimum wage and overtime requirements may apply to employees. 

After expenses like vehicle costs, fuel, and equipment, your take-home pay could be below legal requirements. When you’re misclassified as an independent contractor, the company could claim—incorrectly—that those protections don’t apply to you. 

Independent Contractor Overtime: Can Gig Workers Receive Overtime? 

App-based workers often have long shifts. When you deliver food or drive customers, you probably want to work when demand is high, rather than be limited to a particular start and stop time. 

Most employees are entitled to overtime when they work more than 40 hours in a week. In California and some other states, overtime kicks in after eight hours in one day. 

Workers who are classified as independent contractors generally do not receive those protections. But if you were misclassified, you may have missed out on overtime pay you were legally entitled to. 

What About Minimum Wage and Other Workplace Protections? 

Misclassification may affect more than overtime. It can also affect minimum wage protections and laws governing when and how workers must be paid. 

Independent contractors are often excluded from other workplace protections like workers’ compensation coverage and unemployment insurance. If you’ve been misclassified, you might not be getting all you’re entitled to. 

Signs You May Have Been Misclassified 

No single factor determines whether a worker has been misclassified. However, these might signal you don’t meet the test for independent contractor status: 

• You are told when and where to work. 
• The company closely supervises your work. 
• The company controls how you perform services. 
• Your work is central to the company’s business. 
• You rely primarily on one company for income. 
• You get customers and tasks chosen by the company. 

These facts do not automatically prove you were misclassified, but they may indicate that further analysis is warranted. 

What Should You Do If You Think You Are Misclassified? 

Start by gathering records that show what your job was actually like day to day. A contract may be part of the picture, but so are schedules, app notifications, payment records, emails, text messages, and instructions from the company. 

Evidence that shows how the work actually functioned is critical because worker classification often depends on how a job operated in practice, not just what the paperwork said. 

Protect Your Rights as a Gig Worker with Outten & Golden 

Being required to create an LLC or sign an independent contractor agreement does not necessarily determine your legal status. In many cases, the facts of the working relationship matter more than the label assigned by the company. 

If you believe you were misclassified or denied wages you may have earned, Outten & Golden’s Independent Contractors & Gig Workers practice may help you understand your options. Call 877-468-8836 or complete an online intake form. Our client intake team is available Monday through Friday from 8:30 a.m. to 9:00 p.m. Eastern Time. 

Learn More About Independent Contractor Misclassification 

• The Fine Print: Employment Contract Terms That Can Limit Your Rights at Work 
• Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act 
• Explore the Issues: Contracted Workers 
• California Employers Steal Billions from Workers Every Year. Here are Five Ways You May Be Getting Cheated.  
• Mamdani Secures More than $5 Million for New York City App-Based Delivery Workers. Are Your Rights Being Violated? 
• Independent Contractors & Gig Workers 

This article is provided for general informational purposes only. It is not legal advice and may not reflect the most current law or apply to your facts or jurisdiction. Reading this article or using this website does not create an attorney-client relationship with Outten & Golden LLP. You should consult a qualified attorney about your specific situation.