Employer Classification: Employee vs. Independent Contractor

by Gary Broder, Salibello & Broder LLP

These are times when you, as members, have been incorrectly treated as independent contractors rather than as employees by certain employers. This treatment has a detrimental effect on the members involved for the following reasons:

1) The employers involved may not be making the required benefit contributions to the Special Payments and Pension funds on behalf of these members, which could result in a loss of benefits.

2) Federal, State, and City income taxes are not being properly withheld from member paychecks which could result in members underpaying their taxes unless the members are making estimated tax payments on their own.

3) These employers are not contributing their share of the members' social security and medicare taxes which means their contribution becomes the responsibility of the members resulting in less take-home pay for them.

What Your Classification Means to You

To illustrate some of the differences between treatment as an employee vs. an independent contractor, assume a married member is earning $50,000. If treated as an employee, the employer would be withholding Federal, State, and City income taxes from the member's pay and also withholding $3,825 of social security and medicare taxes from their gross pay. The employer is also required to pay $3,825 in social security and medicare taxes on behalf of the employee. On the other hand, if the member is treated as an independent contractor, there would be no withholding of any taxes from gross pay and the member would be burdened with the responsibility for making quarterly estimated tax payments for Federal, State, City, social security, and medicare taxes. In addition, the member would be responsible for the entire social security and medicare tax obligation, which in all likelihood using this example, would result in additional taxes of approximately $2,710 for the member. Further, more times than not, when an employer treats an individual as an independent contractor, the employer is not making the required payments to the relevant benefit funds. For those musicians performing work under the Motion Picture and Phono Agreements, this oftentimes results in them not receiving their share of special payments. An independent contractor will receive a Form 1099 at the end of the year reporting the gross compensation paid, while an employee will receive a Form W-2 at the end of the year reporting their salary, taxes deducted, and other information.

Reprinted from International Musician, February 2001.