Independent Contractor Misclassification

Under federal and state wage and hour laws, only employees have the guaranteed right to be paid the minimum wage and overtime compensation. An independent contractor does not possess these rights. Fortunately, the question of whether a worker is truly an “employee” turns on the facts and circumstances of his or her work, rather than on whether they are labeled an “independent contractor” by the business who hires them. Otherwise, employers could just force their workforce to sign independent contractor agreements to avoid complying with wage and hour laws.

How Do I Know If I am an Employee or an Independent Contractor?

Federal Law. Under federal law, whether you are an employee for purposes of minimum wage and overtime rules is determined by looking to various factors known as the “economic realities” test. No single factor determines whether or not you are an employee. Instead, a court balances the evidence on each of these factors to determine whether the “economic reality” is that you are an employee. The relevant factors include:

How much control your employer has over your work

Do you have a direct supervisor to whom you regularly report? Does a superior tell you how to carry out your work tasks? Are you disciplined for not complying with work rules or expectations?

Are you permitted to have outside employment? Do you work under a non-compete agreement?

Do you have a set schedule or do you set your schedule?

Your ability to profit or loss from your work, and your investment in the business

If the company you work for is profitable, do you get paid more? If the business is unsuccessful, do you get paid less? Or do you get paid the same regardless?

Do you use your own tools and equipment to perform your work or does your employer provide or pay for them? Do you invest capital or own stock in the business?

The skill required to do your job

Does your work involve a high degree of skill or is your work mostly manual or repetitive? Is an advanced degree or a certification required?

The permanence of the working relationship

Do you work full time for the same company? Do you work on a single project for a set period of time, or do you work week after week for the same company? Do you juggle many different “clients” and generally serve those clients on a temporary project basis?

Whether your work is in the same line of business as the employer

For example, if you are a janitor working for a cleaning company that supplies janitorial services to commercial properties, that makes it more likely you are an employee. Conversely, if you are a janitor working for a law firm, this factor may not support employee status.

Related Cases

The ABC Test

Some states (such as California, New Jersey, and Massachusetts) have more worker-friendly tests to determine whether a worker is an employee or an independent contractor. There are variations on the “ABC Test” and the employer has to establish all three elements (A, B, C) to win:

A. The worker is free from the employer’s control, both under a contract of service and in fact;

B. The worker’s services are outside the usual course of the employer’s business; and

C. The worker is customarily engaged in an independently-established trade or business

The ABC test is very difficult for an employer to satisfy – which means that generally workers are found to be employees and entitled to overtime compensation.

In the example given above, if a janitor is employed by a cleaning company, the janitor’s work is in the same line of business as his employer and thus there is an employment relationship (even if the employer does not control the employee’s work). Therefore the janitor would be considered an employee rather than a contractor.

The ABC Test

Some states (such as California, New Jersey, and Massachusetts) have more worker-friendly tests to determine whether a worker is an employee or an independent contractor. There are variations on the “ABC Test” and the employer has to establish all three elements (A, B, C) to win:

A. The worker is free from the employer’s control, both under a contract of service and in fact;

B. The worker’s services are outside the usual course of the employer’s business; and

C. The worker is customarily engaged in an independently-established trade or business

The ABC test is very difficult for an employer to satisfy – which means that generally workers are found to be employees and entitled to overtime compensation.

In the example given above, if a janitor is employed by a cleaning company, the janitor’s work is in the same line of business as his employer and thus there is an employment relationship (even if the employer does not control the employee’s work). Therefore the janitor would be considered an employee rather than a contractor.

Contact Us

Call Now Button