Key Takeaways

  • Independent contractors can face payment challenges for the work they perform.

  • Freelancers have certain rights for unpaid wages, but handling these situations differs between employees and independent contractors. 

  • American independent contractors are usually paid as 1099 contractors for taxation purposes.

  • Most federal labor or employment laws do not cover independent contractors.

  • Having written contracts in place can make freelance work payment recovery more straightforward.

  • Employees and freelancers can sue for non-payment in small claims court, but each state limits the amount they can claim. 

  • Hire a contract lawyer to ensure your payment agreement is legally binding and clear. Post a job on UpCounsel to find the best contract lawyer in your state for your legal needs.

Unfortunately, it's not uncommon for independent contractors to have difficulty being paid by their clients.

An independent contractor who has not been paid for work they completed may wonder what recourse they have against the client and how to get paid according to their agreement. 

These clients, who may be facing financial difficulties, might also cut the pay of their regular employees. However, one thing is clear: independent contractors and regular employees both have the right to be paid as agreed. 

Handling unpaid wages works differently for employees and independent contractors. Understanding your rights in these situations is vital to ensure they are upheld.

This article will outline your options for unpaid contractor work and freelancer payment issues. We will discuss key differences between employees and freelancers/independent contractors and legal recourse for unpaid contractors. 

Legal Rights of Independent Contractors

To better understand the legal rights of contractors, let’s first review exactly what it means to be one.

What Is An Independent Contractor?

An independent contractor works with a company but is not considered an employee. They are sometimes called freelancers.  

Independent contractor compensation is often based upon completing specific tasks or assignments or at an agreed-upon time interval that may differ from how often the company pays employees.  

Negotiating their pay, payment intervals, and responsibilities involves a contractor agreement between the company and the independent contractor. Independent contractors in the United States are most often paid as 1099 contractors for taxation purposes. 

By nature, payment claims, pay schedules, and terms should be accepted by both parties.  

However, the laws covering these arrangements vary depending on the state. In cases of disagreement, it is advisable to contact an employment attorney to determine the best course of action for your situation or claim.

What Is a 1099 Worker?

A “1099 worker” is another name for an independent contractor. A 1099 refers to Form 1099-MISC, which designates the contractor’s type of worker as an independent with “Miscellaneous Income.”  

A 1099 is a special designation commonly used to pay independent contractors, which is advantageous for both parties. 

In a 1099 agreement, the client pays the independent contractor the total amount owed to the contractor. Because it is a 1099 arrangement, the client does not have to pay payroll taxes but can still claim a tax deduction for the payment. 

The independent contractor receives the full amount billed for their services, which helps their cash flow situation. However, they must remember that they are responsible for paying taxes on the payment.  

Because of this, independent contractors often owe taxes each year instead of receiving a refund from the Federal Government or their state.

Do Independent Contractors Have Any Payment Rights? 

Yes, self-employed freelancers have rights to a contract, control, and decisions and can work full-time or part-time.  

Independent contractors can often work from anywhere, collaborate with other freelancers, and work with other clients simultaneously as long as a contract does not explicitly forbid it.  

Independent contractors have other points of leverage that full-time employees do not.  

For example, if the contract allows them to impose late fees when a client does not pay on time, they can also charge the client for late fees.  

However, there are some downsides to being classified as an independent contractor non-employee. Because independent contractors are not considered employees, most federal labor or employment laws do not cover them. 

They are not protected against discrimination laws in the workplace under Title VII.  

For most freelancers, being a business owner means you don’t have any employee benefits, like an employer-funded 401k or basic health insurance, conferred like full-time employees.  

Similar to employees, independent contractors not paid for work have the right to file a claim.  

Contractors should file a complaint with their state’s Department of Labor for unpaid wages and a claim with the Federal Department of Labor, which enforces the FLSA, otherwise known as the Fair Labor Standards Act. 

Understanding the Difference Between Employees and Independent Contractors

When you start working with a company, determine whether the employer considers you an independent contractor or an employee.  

This is especially important if the company declares bankruptcy—your classification can affect your rights and chances of getting paid for the work or services rendered. 

The basic difference between an employee and a contractor is: 

An employee's day-to-day work is directly supervised and controlled by the employer, while an independent contractor works unsupervised without the employer telling them exactly how the work must be done. 

How They Are Paid

Employees are paid by wage and hour, while contractors are typically paid by their services or on a negotiated timeline, which employees cannot do. 

Benefits

Also, unlike a full-time employee, an independent contractor has no employee benefits since they are not technically employees of that company.  

Employees are often paid an hourly wage. If they are full-time professionals, their company pays them an annual salary. Unlike most independent contractors, these employees are paid on a set schedule.  

Employees are entitled to their minimum earned wage plus any other employee benefits.  

However, their clients may involve them in activities like holiday parties or company days off.

Dealing with Non-Payment

Finally, dealing with nonpayment for work performed differs for employees and independent contractors.

Steps to Take When Not Paid for Work

Independent contractors typically have contracts with their employers, who are also referred to as customers or clients.  

A contract is a strong legal document that a lawyer should create. It requires signatures by both parties agreeing to the stated terms. A written contract makes it easier to get paid should non-payment occur. 

If a contractor does not have a contract in place, getting paid the wages they are owed may be more complex. However, forcing a client to pay as agreed without a written contract may still be possible. 

Just like employees, contract workers should send their claims to the business in writing.  

This letter should explain in detail the work performed and the expected payment in exchange. If you do not have a written contract, gather all documentation you do have, including previous payments and tax documents, such as a 1099 form. 

If the written request does not result in payment, the next step is to hire an attorney.  

They will help you sue for payment, and the more documentation you have available, the better your chances of success will be.

Taking Legal Action for Unpaid Contractor Work

Should you choose to pursue legal action, keep all documentation given to you by the employer that proves how much you are owed.  

This might include:  

  • Pay stubs from previous paychecks

  • Letters or emails

  • Employee guides or handbooks

  • Any other relevant documentation

Keeping these records will help substantiate your claim and increase your chances of success.

Small Claims Court

Whether you are an employee or an independent contractor, you can go to small claims court to attempt collection from an employer or client.  

Each state has different limitations on the amount you can claim in small claims court.  

However, even if you win your case, you may still have difficulty getting paid. This is especially true in the event of an employer or client’s bankruptcy. 

Taking a client to small claims court will also likely sever the relationship, which means they will never be a client again. 

Bankruptcy and Unpaid Wages

If a contractor has been working for a business that files for bankruptcy, they may have an even more challenging time getting paid.  

Businesses that file for bankruptcy must pay claims for money they owe in a specific order. Unfortunately, independent contractors are rarely at the top of the list. However, this doesn't mean all hope is lost.  

Begin by contacting an attorney to determine your best path forward. Be patient and persistent, and you may get your owed payment.

FAQs About Unpaid Wages for Independent Contractors

Browse this list of FAQs to find more answers to your questions about independent contractor nonpayment and freelance work payment recovery. 

Are Payments to Independent Contractors Considered Wages?

One difference in payments to independent contractors instead of employees is that independent contractors are most often paid per project for the work they complete.  

So, technically, independent contractors are not paid “wages” like an employee. 

Unlike employees, independent contractors are not paid a salary and are not always paid hourly, either. However, hourly billing and an hourly rate remain common ways for freelancers and independent contractors to price their work.  

Also, unlike a full-time employee, an independent contractor has no employee benefits since they are not technically employees of that company.  

Remember: employment laws vary vastly for employees and independent contractors, so it is important for independent contractors to educate themselves about their rights to advocate when needed. 

Can I charge late fees for overdue payments?

This will often depend on your contract. While you are legally entitled to charge late fees for overdue payments, you’ll want to have this in writing to ensure your rights are upheld. 

Further, there are also state-specific laws that dictate how much you can charge in late fees.  

For example, in Arizona, the maximum late fee you can charge is 10% unless agreed upon in a written contract. 

In Michigan, this limit is 5% without a written agreement and 7% with one. 

How Long Do Companies Have To Pay Independent Contractors?

Laws and regulations governing payments to independent contractors vary by state, but companies are generally bound by the payment terms specified in a legally binding contract with the contractor. 

Contractors often specify in their contracts when they will invoice, for what work, and when payment is accepted.  

This section of a contract is often one of the most negotiated clauses, as contractors like to get paid as quickly as possible, and clients want to delay it. 

Most contractors get paid on a net 30 basis, meaning payment is due no later than 30 days after they send their invoice.

Can Companies Withhold Pay From Independent Contractors?

Companies can more easily withhold pay from an independent contractor than from someone classified as an employee, but this does not mean it is necessarily legal or right. 

If a company has a legally binding contract with an independent contractor but does not pay them on time, it is technically in breach of contract. Thus, the company is legally liable to litigation.  

Most infringements like this are settled amicably, but independent contractors have some legal recourse options should the client continue not paying.

What Happens When An Employee Does Not Get Paid?

Employers are obligated to pay their employees and must offer fair pay, at least the minimum wage required by their state.  

As per their employee agreement, employers must also pay employees for overtime hours and distribute pay regularly.  

Every state has specific laws that govern how employers pay their workers, and payment is also regulated by the Federal government’s Fair Labor Standards Act (FLSA). 

Employees who do not feel they are being paid as agreed should contact their employer in writing before doing anything else. Explain in detail what payments were not made as expected, including overtime or late paychecks.  

If the employer does not make it right after your attempts, you can do one of the following: 

Contact an Attorney

Contact an employment attorney who handles this type of case. They will help you get the pay you're owed, but you will also have to pay the attorney for their time.  

Many attorneys of this type agree to be paid only if you win the case. You can also specify that the employer will pay the attorney's fees as part of the settlement. 

Contact Your State’s Employment Agency

To file a claim against an employer, contact your state's employment agency, specifically the wage and hour department. 

Either process can take a long time, and you may never get paid. You could also be opening yourself up to termination by your employer.  

These protections vary state by state—be sure to educate yourself on your rights regarding termination before taking this action.

Final Thoughts on Recovering Unpaid Wages

While there can be additional hurdles in navigating contractor payment laws, these aren’t impossible to overcome.  

Keep records of all hours worked, rates agreed upon, and any communication with your employer regarding payment to give yourself the best chance at a successful resolution.  

The importance of having contracts in place before commencing work cannot be overstated. Without these contracts, your chances of being paid what you are owed greatly diminish. 

Work with a contract attorney to protect your contractor payment rights, and you are covered if payment disputes arise. 

Legal Support For Getting Paid As An Independent Contractor

If you need more information or help as an independent contractor who was not paid for the work you did, post your legal needs on UpCounsel's marketplace to find a lawyer in your state.

UpCounsel accepts only the top 5% of lawyers on its site. Lawyers on UpCounsel come from law schools such as Harvard and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.