Knowing whether your workers are employees or independent contractors is crucial for compliance with wage and hour laws and figuring it out is not always as simple as employers think.
“Independent contractor” is the most common misclassification for employees. Employers are tempted to use this classification for workers because independent contractors are not subject to the usual requirements for minimum wage, overtime payments, unemployment insurance, and worker’s compensation benefits. However, the Department of Labor has found that the vast majority of workers are employees regardless of how agreements between the employer and worker describe the relationship.
The Department of Labor using the “economic realities” test, looking to several factors to determine whether a worker is economically dependent on the business (an employee) or economically independent (an independent contractor). Those factors include:
- Whether the work performed is an integral part of the putative employer’s business;
- Whether the worker’s opportunity for profit or loss depends on his or her managerial skill;
- How the investment of the worker compares to that of the putative employer;
- Whether the work performed requires special skills and initiative;
- Whether the relationship between the worker and employer is permanent or temporary;
- How much control the employer exerts over the worker.