Misclassifying as Independent Contractor

Answer 1

Misclassifying employees as independent contractors is a major problem in today’s workforce. In order for the FLSA’s minimum wage and overtime laws to apply to an individual, the worker must be an “employee” of the employer. This means that an employment relationship must exist between the worker and the employer. The FLSA defines “employ” as including to “suffer or permit to work”, representing the broadest definition of employment under the law because it covers work that the employer directs or allows to take place. Using the FLSA’s definition, workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees. While independent contractors are workers with economic independence who are in business for themselves.

Employees misclassified as independent contractors are often denied health and other fringe benefits, paid time off, minimum wage, overtime compensation, family and medical leave, and unemployment insurance. Just because an individual signs a contractor agreement or receives a 1099, it does not mean the individual is not actually an employee entitled to the benefit described above including overtime compensation for hours worked more than 40 in a workweek.

Whether an individual is an employee or independent contractor may not be clear cut. In order to assist, the are a number of “economic realities” factors which should be considered. These include:

1. The extent to which the work performed is an integral part of the employer’s business.

2. Whether the worker’s managerial skills affect his or her opportunity for profit and loss.

3. The relative investments in facilities and equipment by the worker and the employer.

4. The worker’s skill and initiative.

5. The permanency of the worker’s relationship with the employer.

6. The nature and degree of control by the employer. (this is usually the most important factor)

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