Can my employer change my 1099 contracted pay rate without my acceptance or a new contract?

Question

I was hired in November as a cleaner by a cleaning company out of Atlanta, GA. I signed an agreement to perform all duties of the job 7 nights/week for $2200/month. The first month, my gross pay was correct. However, in the second month, my employer reduced my pay to $2000/month without my knowledge. When my pay did not add up properly I spoke with my employer, who said she was reducing my pay for two reasons:

1. My fellow cleaner assumed I was paid more than her and called the employer arguing it was "not fair" that I made more than her and wanted my pay reduced to her amount to be "fair".
2. The facility we clean only pays my employer $3000/month for cleaning services and my employer is profiting nothing and paying the balance of the $4200/month to my coworker and me out of her "own pocket".

I asked my employer if she knew all of this BEFORE she hired two workers, one for $2000/month and myself for $2200/month. She stated that yes, she did know this. So then I asked her how is it she feels justified in penalizing me for her own mistake. I also stated I have a signed employment agreement for the $2200/month, so that is what I should be paid. She agreed over the phone that she would leave it at the $2200/month for me but I must not discuss that with my coworker. I agreed to her condition, but when I got my next pay statement, my salary was reduced to the $2000/month.bl I am now left trying to discover if I have any legal options to force my employer to live up to my contract or move on to another job or accept the pay cut to keep my job. The latter is the only option offered by the employer. This seems like they pulled a "bait and switch" on me.

Answer 1

OK. So there are a couple of issues here. It's good that there was a written agreement, and I hope you have a copy.

If you are being paid as a 1099, on its face you don't have an EMPLOYER. You have a CUSTOMER, but not an employer. You are a contractor, not an employee. This means that your customer isn't taking out taxes, unemployment insurance, and so forth. My best guess is that your take-home pay as a W-2 would be somewhere between $1400-1800 with all the taxes and stuff already taken out, unless you have exemptions (kids, etc.).

Your customer offered this "deal" of $2200 to you to make things look more attractive to you on the front end. This "deal" is also helpful to your customer because they avoid paying worker's comp insurance and the employer portion of Social Security taxes. At tax time, you still end up owing every penny that didn't get taken out up front -- you pay it out as Self-Employment Tax.

The IRS and states (in your case, Georgia Department of Labor) have problems with this kind of arrangement. There is a test that IRS uses to determine if you should actually be a W-2 employee instead of a 1099. As a W-2, you would owe state taxes, fed taxes, social security, and unemployment insurance at a minimum. Neither IRS or any of the States is cool with situations where companies pull this 1099 crap on people. They're also concerned with 1099 contractors getting hurt in the workplace, because they don't qualify for worker's comp insurance as W-2 employees do. See here.

If you were an employee, you could report the rate change as a wage theft to the Georgia Department of Labor. As a 1099, you don't have protections via your state's Department of Labor unless the Department is willing to treat your 1099 situation as an employee situation -- and again, you'd owe some taxes if you go that route. A cleaner way would be to sue in Small Claims or Civil court to get your money, and though you'd probably get a judgment:

• Your customer would immediately terminate your contract
• Your customer sounds shady, and it might be a challenge for you to collect on any judgment.

You don't have much of a dog-in-the-fight on this issue. Find another source of income. DON'T take another 1099 gig unless you fully understand the risks, as it seems (to me) that you do not. Once you get another source of income, then you might consider suing for what the contract states you were owed. Don't hold your breath on getting anything out of it, though. You could get a judgment in a court, and still never see a cent.

I am not an attorney, and this does not constitute legal advice.

Answer 2

It's definitely not clear what your situation is, because you are mixing terms which match an employer-employee relationship (like "salary" and "gross pay") with terms with match a customer-contractor relationship (like "1099").

The fact that you signed a "Salary Agreement Form" makes me think you are supposed to be an employee. But seeing the actual wording of that agreement would be useful.

If that's the case, this means:

• Your revenue should be declared on a W-2, not a 1099
• A number of taxes and other things should be withheld from what is paid to you, and paid to the IRS, state, etc.
• You would thus get less than the gross amount you agreed to, but the agreed gross salary should still be the basis for all computations.
• You are then protected as an employee: your employer cannot just change your salary (downwards) without your consent, and you are owed the agreed amount for each period you worked (if you were present for the agreed hours etc.).
• But Georgia is an at-will state, so your employer can terminate you whenever they want for whatever reason they want. But that does not relieve them of their obligations for the periods you worked before they terminated you.
• If your employer declares you as 1099 and not W-2 and/or does not withhold the necessary amounts and/or does not pay those amounts to the right authorities, they are quite likely in breach of several federal and state laws.

The whole "the other employee complained that you were paid more" and "the customer actually pays less than the total cost of the employees" is just pure and simple b.s. Neither is likely to be true, and neither has any bearing on their responsibilities as an employer.

Them not paying you the agreed amount is just plain and simple wage theft. The penalty for them can go up to $10K for a first violation.

So you can (and should) definitely claim back the money they owe you (you can sue them for that if they don't respond positively, and probably report them to the US Department of Labour Wage and Hour Division if they don't correct things promptly, but as they already told you, they will most certainly respond with terminating your contract. It is also possible they will "forget" to pay you for amounts owed since your last pay (yet more wage theft). So you should most definitely find another job first. That doesn't prevent you from claiming owed amounts once you have terminated your agreement with them (properly following procedures such as notice period etc.).