Are You an Independent Contractor or an Employee?
The Difference is Important to Your Paycheck
Businesses across numerous industries use independent contractors to fill crucial roles in their workforce. Construction, trucking, nursing, and IT are just a few of the industry sectors that commonly hire independent contractors.
Companies chose the independent contractor relationship in large part to avoid the costs associated with hiring employees. Businesses do not have to provide overtime pay, unemployment insurance, worker’s compensation, and other benefits that must be provided to their employees. Those costs are shifted to the contractor.
While it is true that some independent contractors do exist – operating their own businesses, performing consulting services, and performing services for more than one employer at a time – many who work as independent contractors are misclassified.
The United States Department of Labor (“DOL”) recently announced a new initiative to address misclassification issues. The DOL enforces federal wage and hour law (the FLSA) and the Family Medical Leave Act (“FMLA”). The DOL has responded by not only education and outreach, but by strategic enforcement throughout various industries.
This will be done by determining if workers are economically dependent upon the employer, making them employees, or in fact, doing business for themselves, making them independent contractors. According to the DOL, the determination as to whether a worker is an employee or independent contractor is properly analyzed under a multi-factor “economic realities” test.
The test has typically been described as containing the following factors, although some courts state the test differently:
- The extent to which the work performed is an integral part of the employer’s business;
- The worker’s opportunity for profit or loss depending on his or her managerial skill;
- The extent of the relative investments of the employer and the worker;
- Whether the work performed requires special skills and initiative;
- The permanency of the relationship; and
- The degree of control exercised or retained by the employer.
These factors are to be considered as part of a balancing test, with no single factor assigned disproportionate weight and no single factor to be considered determinative of the outcome. The DOL has advised that when enforcing the FLSA and FMLA, they will not consider the presence of a formal employment agreement in evaluating whether a worker is an independent contractor.
So what does all this mean to you? If you work as an independent contractor, but your efforts are devoted to just one employer, you should take a closer look at the relationship. If you are misclassified, you may be losing out on overtime pay and other important benefits. For example, if you suffer a work-related injury and have not obtained workers compensation insurance, you could be stuck with medical bills and no paycheck. If the company undergoes a reduction in workforce, you are likely to be the first to be let go, but the company will fight any effort to claim unemployment benefits. If you become ill and need a leave of absence, you won’t be entitled to family medical leave.
The differences between an independent contractor and an employee are important and you should not just accept the contractor label without doing some investigation on your own.
For more information, give us a call at: 614-488-2053 or refer to the DOL’s website: www.dol.gov.