Independent Contractors and the Economic Realities Test

QUESTION: What do exotic dancers, construction workers, chefs, nurses, security agents, railroad car loaders, bus drivers, cable installers, plumbers, cake decorators, welders, crab pickers, firework stand operators, gas station operators, grocer delivery personnel, chicken catchers, insurance sales agents, waiters and waitresses, parking lot valets, and locker room attendants have in common?

ANSWER: Employers commonly improperly classify employees in these occupations.

As you can see, employers in a wide variety of industries classify workers as independent contractors. This is significant because, in addition to the tax benefit they receive, employers do not have to pay independent contractors overtime wages even if they work more than 40 hours in a week. Independent contractors also have no entitlement to their employer’s worker’s compensation insurance or unemployment insurance benefits. The problem is that employers often misclassify individuals who should, under the law, be classified as employees, and therefore should be paid overtime, as independent contractors. However, just because you are told you are an “independent contractor,” doesn’t mean you actually are under the law. In order to determine if you are improperly classified as an independent contractor, for overtime purposes, you should ask yourself the following questions:

(1) Who controls the hours you work and the type of work you perform?

If the answer is your “boss,” and not you, you may actually be an employee.

(2) Who supplies the facilities you use or the tools for the work you perform?

If the answer is your “boss,” and not you, you may actually be an employee.

(3) Who sets the prices for the work you perform or the products you create?

If the answer is your “boss,” and not you, you may actually be an employee.

(4) Are you in a permanent employer-employee relationship with your employer?

If you have a permanent relationship with your employer and not a short term or temporary contract for a specific type of work, you may actually be an employee.

(5) Do you perform work that requires specialized skills, training, certification, or testing?

If the answer is no, (i.e. you perform “general work”), you may actually be an employee.

(6) Is your work an integral, or essential, part of the employer’s business?

If the answer is yes, you perform the primary work of your employer (i.e. you bake bread and work for a bread baker), you may actually be an employee.

These questions are the basic inquiries for what is called the ECONOMIC REALITIES TEST. The economic realities test is what courts use to determine whether individuals should be classified as an employee under the Fair Labor Standards Act.

If you are currently classified as an independent contractor, use the questions above to determine if that classification is proper. If you believe the classification may be improper, you may be entitled to back pay for the overtime wages you did not receive, in addition to penalties. Remember, just because your employer says you are an independent contractor, doesn’t mean it’s necessarily true. Take a moment to evaluate the economic realities of your own situation.

The foregoing is not meant as specific legal advice, but as a general statement of law for your information. If you have specific questions, please contact our firm.

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Summer Murshid