Employee v. Independent Contractor: Misconceptions About Misclassification

May 19, 2017 – Misclassification of employees as independent contractors continues to be a problem in the U.S. workplace. The Fair Labor Standards Act (FLSA) entitles employees to minimum wage, overtime pay and other benefits and legal protections that independent contractors do not receive. However, some employers incorrectly treat workers as independent contractors to reduce costs and avoid legal responsibilities. Many independent contractors do not realize they may be employees and that certain factors are immaterial to determining whether they are independent contractors.

Why is it important to determine whether I’ve been misclassified?
When a worker is misclassified as an independent contractor, they are denied benefits and protections to which employees are legally entitled. In addition to minimum wage and overtime pay, an employee, not an independent contractor, may be entitled to:
  • Job-protected family and medical leave
  • Certain protections against discrimination and retaliation
  • Workers’ compensation for job-related injuries
  • Unemployment insurance
  • Payment of Social Security and Medicare taxes by the employer 

Employers who misclassify employees violate the FLSA and related state laws and may be required to pay for lost wages, overtime, workers’ compensation benefits, health insurance benefits and/or back taxes and related penalties.

How do I know if I’ve been misclassified?
There is no single rule for determining who is an independent contractor. Courts weigh a variety of factors, including: whether the work is integral to the employer’s business; whether the worker exercises managerial skills to personally affect his/her opportunity for profit and loss; the worker’s investment in equipment and business needs relative to the employer; whether the worker exercises independent initiative and business judgment; the permanency of the working relationship; and control by the employer. While all factors are considered, control is perhaps the strongest indicator of whether the worker is an employee or independent contractor. In other words, courts look at how much control the employer exercises over the worker’s pay, hours of work, method of performance, and freedom to work with other businesses and hire employees.

Common misconceptions about the employment relationship
Certain factors are irrelevant to assessing whether a worker is an independent contractor. While these factors may suggest the worker is an independent contractor, the reality of the working relationship is what is ultimately determinative.
  1. I signed an agreement stating I’m an independent contractor. The label alone is irrelevant. Courts look at whether the worker appears to be in business for themselves (independent contractor) or is economically dependent on the employer (employee).
  2. I received a 1099 tax form. Receiving a 1099 is the result of how the employer has classified you for tax purposes and is not by itself determinative of whether you are an independent contractor. What matters is whether you or the employer has the right to control your work.
  3. I work offsite or from home and have some flexibility with my hours. Both employees and independent contractors work offsite. What is more important is whether the employer maintains control over how you do your work, rather than where it is performed.
  4. I’m not on the payroll. Being paid in cash “off-the-books” does not make you an independent contractor. Rather, the employer may be in violation of the FLSA for failing to keep records of wages and work hours you have worked.

These are just some misconceptions. For more, see the U.S. Department of Labor’s Myths About Misclassification.

Protect Your Employment Rights
If you believe you have been misclassified as an independent contractor, our employment attorneys want to hear from you. Baillon Thome Jozwiak & Wanta LLP is dedicated to protecting the rights of employees and has susbstantial experience representing employees in FLSA litigation. For more information about independent contract versus employee classification, contact us at 612-252-3570 or click here for a free initial consultation.