The Fair Labor Standards Act defines the word, “employ,” as “to suffer or permit to work.” Generally speaking, employees are those workers who are economically dependent on the employer. Independent contractors are those who are economically independent and are in business for themselves. These definitions may seem basic, but are in practice, extremely difficult to interpret. Generally, courts throughout the country use certain factors in making the employee/independent contractor determination.
Most courts use the “economic realities” test which helps decide whether the worker is independent of the employer. Some factors to consider follow:
- The extent to which the work performed is an integral part of the employer’s business (if the work performed is integral to the employer’s business, the more likely the worker is an employee)
- Whether the worker’s managerial skills affect his or her opportunity for profit and loss (examine the extent to which the worker exercises managerial skills)
- The relative investments in facilities and equipment by the worker and the employer (if the equipment is provided by the worker, then it is less likely the worker is an employee)
- The worker’s skill and initiative (the higher the worker’s skill, the more likely it is that the worker is contracting in the open market, i.e. carpenter)
- The permanency of the worker’s relationship with the employer (the longer the relationship, the more likely the worker is an employee), and
- The nature and degree of control by the employer
For the last factor, courts will look at whether the employer controls the hours, the place, and the time of the actual work.If the employer controls these factors, the more likely the worker will be an employee.
Although this list is not exclusively used by every court, it is generally common among them.
There are also factors that are immaterial to this distinction. For example, it does not matter whether the worker signed an agreement stating that he or she is an independent contractor. Also, employee status is not determined by time or method of pay.
When a worker is an employee, he or she must be paid the higher of either the federally mandated minimum wage or the state mandated minimum wage. That worker also must be paid overtime at time and one-half his or her regular rate of pay if he or she works over 40 hours in one week.
Misclassifying your workers can potentially have negative legal consequences, so if you are an employer unsure of your worker’s status please contact an employment law attorney.