There was once a time when the employer-employee relationship ranked as one of the most important factors to building and maintaining a successful business. It was considered a good thing if an employee remained with the same employer for a long period of time, but that has changed with the age of independent contractors.
Modern employers are increasing their dependence on outsourcing jobs once performed by their employees to independent contractors.
Remote work, also known as work from home, is rising in popularity, most recently due to the coronavirus. Classifying employees as independent contractors is increasingly becoming an attractive, cost saving option for the modern employer. For example, because of some of the freedoms enjoyed by individuals who work from home, it can be very tempting for an employer to classify them as independent contractors.
Why does this matter?
Independent contractors are not entitled to things like health benefits, social security, workers’ compensation, or overtime, among others. It is not hard to see why an employer would want to classify employees as independent contractors. It can result in a substantial savings for that employer.
However, just the fact an individual is working from home or in an otherwise non-traditional work set up does not automatically mean that individual is properly classified as an independent contractor. The number of workers who are misclassified by Employers is increasing. It may be up to the worker to ask how the employer has classified them and whether the classification is correct.
Courts use something called the “economic realities” test to determine whether an individual is an independent contractor or an employee. This test considers several factors including:
- The degree of control exercised by the employer. Who controls the hours to be worked? Who determines when those hours must be worked? Who decides the manner in which the work will be performed and how payment will be made for the work? If the employer is the only one authorized to make these decisions, it is more likely the worker is an employee.
- Whether and how much the worker has invested money or pledged other assets to fund the business. If a worker has invested their own money or pledged personal assets to help fund the business, it is more likely the worker is an independent contractor.
- The degree to which the employer determines the worker’s opportunity for profit or loss. While an independent contractor may get paid only if the business shows a profit or achieves a positive return on an investment, an employee is usually paid a predetermined hourly wage or salary, without regard to the business’s financial performance.
- The skill and initiative required in performing the job. Routine, repetitive job duties usually indicate a worker is an employee. An independent contractor is more likely to offer specialized services and be expected to exercise his own initiative in ensuring the delivery of those services.
- The permanency and exclusiveness of the relationship. Is there a predetermined end date to the employer/worker relationship? Is the employer/worker relationship intended to be a short one? A relationship with no foreseeable end, barring misconduct by the employee, is more likely to be an employer/employee relationship. Another factor to be considered is whether the employee is free to perform work and enter into contracts for the performance of work with other parties unrelated to the business. While an independent contractor may be free to explore other opportunities, an employee is often prohibited from doing so.
It is important for every working individual to ensure they are classified correctly.
The above factors are guidelines to determining a worker’s proper classification. An employer’s classification of a worker as an independent contract is not the last word on whether a worker is entitled to be paid overtime if they work more than 40 hours a week.
If you feel you have been misclassified as an independent contractor by your employer, it is important you contact a qualified attorney to address this with your employer and ensure you are receiving everything to which you are entitled under the law. In some cases, you may be entitled to substantial back pay and overtime if you have been misclassified for a long period of time.
At The Crone Firm, we have several attorneys dedicated to ensuring employees are properly classified and when they are not, making a claim for the benefits, including overtime, they should have been receiving for work already performed and to which they will be entitled for future work for the same employer.