Independent Contract Not Paid for Your Work? Here's What to Do

When are independent contractors not paid properly?

You’ve likely landed on this article for one of two reasons:

• Scenario #1: You’re performing the duties of an employee, but your employer is misclassifying you as an independent contractor — which means you’re not being paid the benefits you’re entitled to
• Scenario #2: You completed a project for a client by the deadline, and you’re now dealing with payment issues. This might include no payment, late payment, or payment lower than the agreed-upon rate

This article will show you how to resolve both.

If you already know which one applies to you, you can skip ahead to learn what to do if you’re misclassified or how to handle missing payments.

Otherwise, read on as we clear up the distinctions between a contractor and an employee. 

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Independent contractor vs. employee: What’s the difference?

An independent contractor is hired by a business to provide a specific service. They can choose how the job gets done, and they’re paid only for that service — without benefits like health insurance or paid time off.

A full-time employee, on the other hand, is on the company payroll and often gets benefits. Instead of a contract for a specific service, they have a variety of longstanding responsibilities.

If you’re not quite sure which category you should fall into, I’ve laid them out in a chart.  

You can also check out how the IRS distinguishes the two.

Your role shouldn’t have a mix of the two columns. You should fall firmly into one category or the other. 

But what if your work situation looks like the “Employee” column, yet you’re being paid as a contractor?

What to do if you’re misclassified as a contractor

If you were hired as a contractor, but find yourself performing the duties of an employee, you might be entitled:

• Medical coverage
• Paid time off
• Earned sick leave
• Overtime pay
• Workers' compensation
• Unemployment benefits

These benefits are parts of your pay that you’re not getting.

How should you resolve this? That depends on why you’re being misclassified. There are two broad situations where that might happen to you:

• Scenario #1: It was an accident, over the course of a long project
• Scenario #2: It was done on purpose, so the company can save money.

Let’s go over what to do in each scenario.

Accidental misclassification

When an independent contractor is hired to perform a single task, it’s easy to stay within the boundaries of the contractor-client relationship.

But when you form a long-term partnership with a client, those boundaries can start to blur. A client might want you to work certain hours or ask for oversight on a continuous project.

Solution: Communicate with your employer in writing

Once you feel a client has veered into misclassification territory, revisit your expectations with them:

• If they want control over your work, they should offer you a W-2 job
• If a job isn’t on the table, reestablish the terms of your contract, so you get your autonomy back

Purposeful misclassification

Unfortunately, employers sometimes misclassify their employees to cut costs for all the benefits they’d otherwise have to pay.

This practice “frequently occurs with licensed practical nurses, certified nursing assistants, and home health aides,” said Franklin J. Rooks, Jr., an attorney who represents people who have been misclassified. Staffing agencies are often to blame.

Rooks has seen employees misclassified in a number of industries outside of healthcare, including:

• Construction workers
• Hair stylists and colorists
• Mortgage loan officers
• Truck drivers

In Rooks’ typical cases, his clients “derived their sole source of income from the employer, worked at least 40 hours per week, and… were subject to the control of the employer,” he said.

If you think your employer has purposefully misclassified you to save money, here’s what you can do.

Step #1: Communicate in writing

Once again, write to your client. 

“I think a worker should see if they can find a reason… why the company is classifying [them] as an independent contractor, or at least understand the rationale,” Rooks said.

Be prepared to provide the reasons why you believe you’re misclassified. 

Step #2: Turn to the IRS

If your client doesn’t clear things up, you can fill out Form SS-8, titled “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” You don’t need to have legal counsel to file this form.

Send it to the IRS. It will review your case and determine whether you’re legally a W-2 employee or a 1099 worker. Keep in mind: It will contact your employer to get more information during this process. The whole process can take up to six months.

If the IRS agrees that you’re an employee, you’ll no longer owe self-employment tax. Already paid it for the year? You can file an amended return to get the money back.

Step #3: Meet with a lawyer for free

At this point, Rooks recommends contacting “an employment attorney that offers free consultations.” They can offer legal advice and help you figure out if misclassification occurred.

“Many times, people come to me after they have complained to their employer without any success, or have complained and [been] terminated,” he said. His firm typically gets clients a “financial resolution” either way.

Step #4: Talk through your legal options

Employment attorneys like Rooks don’t always jump straight to suing, though that option is on the table. They'll evaluate the best thing to do on a case-by-case basis.

“Sometimes, we place the employer on notice of its violation of the law through a ‘demand letter,’” he said. “Other times, we may file a lawsuit. But whether we do both, either, or neither depends on a number of factors” — especially whether the client is owed unpaid overtime.

If a company has misclassified multiple workers, Rooks’ firm will consider a class action lawsuit.

Let’s move on to what true independent contractors can do if having trouble getting paid on time.

When should you consider payment late as a contractor?

Consider the payment late as long as:

• You’re holding up your end of the contract
• You don’t get paid within the agreed-upon timeframe — even if it’s just by one day.

If you get paid for less than your contract states, that’s also a problem.

Using contracts and invoices to specify payment terms 

When you start working with a new client, you should always sign a contract that states:

• What you’ll be doing
• How you’ll get paid
• When you’ll get paid

If you submit invoices to your clients, they’ll also state when and how you’ll be paid. (Keeper has a handy invoice template you can use for free.)

As a further delay tactic, a client who’s late to pay might try to change other things about your payment process.

Ann Schreiber, a freelance blogger and copywriter, once completed a test article, only to have her client cut off communications for two weeks. “When he finally responded, he asked me to send him a PayPal invoice, which was a different process from what was outlined in our initial agreement,” she said.

Schreiber ultimately got paid by yielding to the client’s wishes, but it took two more weeks. “I think the entire project was a way for them to get a low-cost test article, and there was never any intention of future work,” she said. “But for me, it took so much extra effort to get paid, I am not sure I would have wanted to work with them anyway.”

Let’s go over what to do if clients give you the runaround.

How to deal with a late or missing payment

A missing payment might boil down to simple oversight on your client’s part — which means it can potentially be resolved with communication. If that doesn’t work, there are ways to escalate.

Here are the next steps you can take to get paid.

Step #1: Reach out to your client to let them know

Send your client another copy of your invoice, with a reminder that the payment is past due — Include how many days it's late. Here’s a template you can follow for your reminder email. 

If you got paid for the wrong amount, resend the invoice and explain the discrepancy.

“Keep communication neutral and don’t make it personal or take it personally,” said Anna Sonenberg, who owns a digital marketing agency. She used “sternly worded emails” to resolve $20,000 in late payments from a major client.

Step #2: Keep following up at regular intervals

Sometimes, one payment reminder isn’t enough. If you don’t hear back after the first email, continue to reach out with reminders.

At the very least, send a reminder when the payment is:

• 30 days late (here’s another reminder email template)
• 60 days late (one more handy reminder email template)

Use automated payment reminders that you can set and forget

“I’ve noticed a correlation between payment reminder emails and payment [timing],” said SEO consultant Genesis Aguilar.

“Typically, after the second reminder… they will make a payment a few minutes after that email.”

Get them on the phone if your emails go unanswered

In addition, don’t forget the power of a phone call. While it’s good to get things in writing, if emails aren’t working, you may have more luck reaching a resolution on the phone.

Step #4: Implement a late fee policy

If your client is late repeatedly, reach out with a polite note about the recurring issues. Let them know you’re implementing a late fee policy. 

1% to 5% will usually nip the problem in the bud. (Check out our full guide on setting late fees for more tips.)

Aguilar, the SEO consultant, used this tactic after a small business client paid her late for the second time. The change “set the tone for future payments.”

“To my delight, they were completely understanding and were not deterred from working with me again,” she said.

Step #5: Consider extending grace for special circumstances

Sometimes, a client is late to pay for reasons beyond their control — for example, if the money’s just not there.

In cases like this, freelance German copywriter Zlatan Maric suggested “alternative solutions,” like “partial payments or installment plans, to help clients meet their obligations without putting undue strain on their finances.”

Client money troubles can mean you’re choosing between:

• Getting paid less than you deserve
• Not getting paid at all

It’s a frustrating position to be in. But okaying the occasional partial payment can save you from walking away empty-handed.

Allow partial payments sparingly

Don’t be too quick to make concessions on partial payment. You did the work, after all, and you should be compensated for it.

In one case, Maric “considered offering a small discount for prompt payment, but ultimately decided against it.” He explained, “I had already provided quality work and met the deadlines agreed upon.”

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Step #6: Take them to small claims court

If emails and calls go unanswered — or if the client does get back to you and refuses to pay — you might decide to file a lawsuit in small claims court for breach of contract.

In small claims court, people represent themselves instead of hiring a lawyer. Still, you may choose to seek an attorney’s advice before going to court. 

What kind of client payments can go to small claims court?

Small claims courts also often only deal with cases below a certain value. Most contractor payments should fall well within those limits. In California, for instance, individuals can only go to a small claims court if their lawsuit is under $10,000. 

Ask for payment installments to avoid missing too much money at once

If you’re working on a four or five-figure project for a client, arrange payment installments to avoid having to chase a large chunk of money if issues come up. 

Here are two options for doing that:

• Option #1: Charge half the payment upfront and the other half when the project is completed
• Option #2: Establish progress milestones and ask for a certain percentage of the fee at each point 

Melissa Chiou, a content strategist, recommends the first option. She’s willing to deny access to her work if the client fails to make their agreed-upon second payment.

“I had one client who did not pay me, so I deleted all the recorded YouTube tutorials I did for him,” she said. “He contacted me weeks later… and asked where the tutorials were. I did not respond.”

“I did not get paid, but at least he didn’t get free work either,” Chiou explained.

Can contractors write off collection expenses?

Yes. “Independent contractors can write off legal fees or other costs associated with getting a client to send owed payment,” said financial advisor and CPA James Allen.

This means that when you file your taxes, you can include collection costs as deductible business expenses on your Schedule C. Use box 17 for this.

“To qualify as a deduction, the costs must be reasonable and necessary,” Allen added. “You need to show you made a considerable effort to collect the owed payments before incurring legal expenses.” Taking all the steps laid out above — like emailing, calling them, and alerting them to your late fee policy —  should qualify.

If you aren’t sure what else counts as a write-off, check with Keeper. Our expense tracking app automatically logs each time you spend money on a qualifying business expense — including legal fees. 

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While you work on growing your business, Keeper stays busy behind the scenes, ensuring you save as much as possible when you file your taxes. The app comes with support from tax assistants who can help answer your tax questions.

What should you do about clients who always pay late?

Our final tip for freelancers who aren’t getting paid: stop working for that client. 

This might not feel like an affordable option for everyone, but consider whether your time would be better spent looking for new clients instead of doing unpaid work.

Grace Townsley, who runs a small copy and graphic design agency, has learned to take this step after racking up five figures in unpaid fees from a single client.

“Fourteen days became 30 days, then 40 days, then 60 days,” she said. “And because I do monthly work for this client, the invoices began stacking up. After 90 days without payment, and four outstanding invoices totaling over $10,000, I stopped delivering work to the client.”

Hopefully these tips prove helpful in getting you paid. We also hope you only have to read this article once, and that any payment issue you’re resolving now is the last one.