Independent Contractor Misclassification

Most independent contractors are actually employees that have been misclassified by companies that employ them. Being considered an employee of a company as opposed to an independent contractor generally entitles you to receiving minimum wage and overtime pay. Sometimes a company will incorrectly classify a worker as an independent contractor to avoid paying them proper wages in order to cut costs. This kind of misclassification is unfortunately all too common across all job industries.

However, there are laws in effect that help regulate this sort of misclassification. The Fair Labor Standards Act states that in order to have protection under federal law, a worker must show that they are an employee and not an independent contractor. It all comes down to the relationship between the worker and the employer. If a worker is economically dependent on the employer’s business, regardless of his/her skill level, the worker can be considered an employee of the company. On the other hand, if a worker is considered to be in a business for themselves that is economically independent of the employer’s then they can be categorized as an independent contractor.

In order to determine whether a worker has been correctly classified as an employee or an independent contractor, the Department of Labor has developed a test called the “Economic Reality” Test. This test considers certain factors of the worker’s job responsibilities which include:

• What is the employer’s extent and degree of control over the worker?
• What opportunities does the worker have for profit and loss?
• How integral is the worker’s job performed to the employer’s business?
• How permanent is the relationship between the worker and the employer?
• What initiatives and skills does the worker show?
• How much is invested into facilities and equipment by the worker and employer?

It is important to note that even if an employer made a worker sign an agreement stating that he/she was an independent contractor does not necessarily make it true. Also, how a worker is paid, including the frequency of the payment is not taken into consideration when determining the validity of an employer to employee relationship. No one factor weighs more heavily than another and all are taken into account when determining whether a worker is an employee or an independent contractor.

Most workers receive a 1099 at the end of the year rather than a W-2 should inquire as to whether they have been improperly misclassified. If it is determined that the independent contractor was actually an employee, they may be entitled to significant back pay for unpaid overtime and liquidated damages.