Frequently Asked Questions (FAQs)
About Iowa Worker Misclassification
1. What is misclassification of workers?
Misclassification happens when an employer incorrectly classifies
workers as independent contractors instead of employees.
2. Why is it important to correctly classify workers?
An employer has different legal, tax and financial obligations
depending on how a worker is classified. If you are an employee,
the employer must:
F.I.C.A. (Social Security) and Medicare taxes from the
(Social Security) and Medicare taxes in addition to the
taxes (which provides insurance coverage if the worker is laid
compensation insurance (which provides insurance coverage if the
worker is injured on the job); and
state and federal wage and overtime laws, contractor
registration requirements, and other employment, labor, and
employee benefit laws.
If you are an
independent contractor, the employer generally does not have the
duties listed above. The worker must:
An independent contractor cannot get unemployment compensation.
In many cases, the worker will not get workers’ compensation if
injured on the job.
3. What difference
does it make to workers, businesses and taxpayers if workers are
denied unemployment insurance benefits if laid off.
denied workers’ compensation coverage if hurt on the job.
other employment and labor law protections, such as minimum
wage, overtime, health and safety, and family and medical
full Social Security taxes and report their own income
If workers are
paid in cash, no one pays FICA/Social Security taxes. The
worker may get less in Social Security benefits at
access to employer-based benefits, such as health insurance.
Employers fail to pay
withholding taxes, FICA taxes, unemployment taxes and
workers’ compensation premiums. They may face penalties.
Employers jeopardize a fair
and competitive marketplace by underbidding honest,
law-abiding businesses that include all required taxes and
benefits in their overhead.
Employers may be required to
pay employees unpaid income taxes.
Employers that don’t pay
unemployment taxes could result in higher taxes for all
Government collects less
unemployment taxes to pay unemployment insurance benefits.
Government collects less
income and FICA taxes.
Taxpayers bear costs avoided
by others. The costs do not go away.
misclassifying an employee illegal?
Yes. Intentionally misclassifying workers is illegal and constitutes
tax and insurance evasion.
5. Could an employer face penalties if workers are misclassified?
Yes. Employers that misclassify may face:
6. What laws impact
The laws include:
Taxes: Iowa Code Chapter 96
Income Taxes: Iowa
Code Chapter 422
Compensation: Iowa Code Chapters 85-87
Wage: Iowa Code Chapter 91D
Payment Collection Law: Iowa Code Chapter 91A
Registration: Iowa Code Chapter 91C
Law: U.S. Code, Title 29, Section 207
Wage Law: U.S. Code, Title 29, Section 206
7. Who is an
“employee” under Iowa law?
An employee is anyone performing services for an employer.
The employer controls the work to be done and how it will be done.
8. Who is an “independent contractor?”
“Independent contractors” are in business for themselves. They are
not employees. They have an independent trade, business or
profession they offer to the public. They are generally hired to
accomplish a task(s) determined by the employer. Independent
contractors retain the right to control how they will do the work.
9. What if I have a contract that says I am an independent
A written contract that creates an independent contract relationship
is worthless if the employer retains the right to control what will
be done and how it will be done.
Generally, an employer-employee relationship exists when the:
10. What does it
mean if I get a 1099 form at the end of the year?
A 1099 form reports an independent contractor’s income. This usually
means that the employer did not withhold federal or state income
taxes, or FICA (Social Security) or Medicare taxes from the worker’s
pay during the year.
The 1099 form is the right form to use if the worker really is an
independent contractor. It is the wrong form to use if the worker
really is an employee.
Employees should get a W-2 form at the end of the year. The W-2 form
includes total wages and the amount of federal and state income
taxes withheld. If you get a 1099 when you should have a W-2, you
might owe federal taxes.
11. Who determines if a worker is an employee or an independent
Iowa Workforce Development and the Iowa Department of Revenue have
Investigators and auditors who determine worker classification by
employers. If you have questions, you may contact the
Misclassification Unit IWD. Click here for contact information. You
also may contact the Department of Revenue’s Taxpayer Services at
(515) 281-3114, or via the web site:
12. How do state investigators and auditors determine if a worker
is an “employee” or an “independent contractor?”
The facts in each case are different. Several factors are
The right to
control the work to be done and how it will be done, whether or
not used, is an important factor. The right to discharge a
worker at will and without cause is strong evidence of the right
of direction and control.
Other factors include:
How much does
the employer actually control the way the services are
person performing the services have a separate, established
occupation or business?
Is the work
usually performed without supervision?
What skill is
needed to perform the services and accomplish the desired
the tools, equipment, and place of work for the person doing
of services an isolated or continuous event?
How is the
worker paid? Is it by time (hourly or weekly), a piece rate,
or by the job?
Is the work
part of the regular business of the employer?
services performed for the employer as an individual or for
the employer’s business?
Can the worker
make business decisions that result in a financial profit or
loss for the worker? The worker's investment of time is not
enough to show a risk of loss.
Is the worker
required to perform the service personally? Can the worker
hire assistants? If the worker hires substitutes or helpers,
is approval required? Who pays the substitutes or helpers?
Is the worker reimbursed if the worker pays the substitutes
customer pay the worker or the business?
What type of
advertising does the worker do (e.g. business listing in a
directory, business cards, etc.)?
13. How can I
report employment misclassification?
You can report suspected misclassification to the Misclassification
Unit at Iowa Workforce Development. Click here to report
Iowa Misclassification Home Page