Labor and Employment

Am I an Independent Contractor Under Federal Wage and Hour Laws?

By Lisa Guerin, ​J.D., Boalt Hall at the University of California at Berkeley
You might be an employee entitled to overtime pay, even if your employer calls you an independent contractor.

The federal Fair Labor Standards Act (FLSA) sets the basic wage and hour requirements for most employees in the country, including minimum wage, overtime, what counts as work hours (for which employees must be paid), and child labor laws, among other things. However, the FLSA doesn’t protect all workers: It applies only to employees, not independent contractors.

Whether you are classified as an employee or independent contractor makes a huge difference in the way the company must treat you. Everything from your tax status to your workplace rights depends on this classification. This article explains how courts determine whether a worker is an employee or an independent contractor for purposes of the FLSA.

Rights of Employees Versus Independent Contractors

Workers who are classified as employees have a number of rights—and are subject to certain restrictions—that don’t apply to independent contractors. For example, employers must withhold income taxes, Social Security, and Medicare taxes from employee paychecks. They must also pay a portion of employees’ Social Security and Medicare taxes. Independent contractors, on the other hand, are responsible for paying all of these taxes by themselves.

Employees also enjoy a number of workplace protections that independent contractors are not entitled to, including:

  • wage and hour protections, such as receiving minimum wage and overtime
  • unemployment compensation
  • workers’ compensation coverage, and
  • protection against discrimination and harassment (although some state laws protect independent contractors too).

The Economic Realities Test

The key difference between employees and independent contractors lies in the word “independent.” Independent contractors are in business for themselves, deciding which jobs to take, how much to charge, and when and how to do the work. Employees, by contrast, are economically dependent on their employer, who has the right to control every aspect of their work.

Courts and the federal Department of Labor, which interprets and enforces the FLSA, use an “economic realities” test to determine whether a worker is really an employee or independent contractor for purposes of wage and hour laws. (Other agencies use different tests to determine who qualifies as an independent contractor for other purposes, such as workers’ comp or unemployment compensation.) A worker who is economically dependent on the company is more likely to be classified as an employee; economic independence points towards contractor status. The main factors courts consider in making this determination are:

  • Whether the work is integral to the company’s business. A worker who is performing the essential work of the company—such as manufacturing the products it sells or providing the service it markets—is more likely to be classified as an employee. A worker who performs tangential work—such as painting the offices of a law firm or designing a website for a furniture store—is more likely a contractor.
  • Whether the worker has an opportunity to turn a profit (or realize a loss). An independent contractor sets the price for the work and can charge as much as the market will bear. An employee, on the other hand, typically earns an hourly wage or salary, regardless of the company’s fortunes.
  • Whether the worker invests in equipment and facilities. An employee generally works at the employer’s place of business, using tools and supplies provided by the employer. An independent contractor typically provides the material necessary to do the job and might work from home or his or her own office.
  • Whether the job requires special skills and initiative. An independent contractor is running a separate business, often competing with others for work in the open market. A contractor typically also has specialized skills, such as training as an electrician or landscape designer.
  • The length and permanence of the job. Typically, a contractor works by the project, performing one job for a company and then moving on. A contractor might also work for multiple companies at once. A long-term or open-ended job arrangement looks more like an employment relationship.
  • How much control the company has over the way the job is done. An employer has much more control over an employee, including the ability to set pay, hours, tasks, procedures, and otherwise dictate how the work gets done. An independent contractor, on the other hand, might be given specifications from the company as to the final product, but generally determines how and when to do the work.

If You Are Misclassified

Some employers misclassify workers as independent contractors when they really are employees, in order to save on taxes, avoid paying minimum wage or overtime, or shirk other responsibilities. However, it is the reality of the working relationship—and not a job title or label given by your employer—that determines whether you are an employee or an independent contractor.

If you believe your employer has improperly misclassified you as an independent contractor, talk to an experienced employment lawyer right away. As you can see, courts consider all of the facts and circumstances in determining classification. A lawyer will look at your situation and help you assess how strong your claim is and what you should do about it.

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