Employees misclassified as Independent Contractors get overtime pay

Many workers are wrongfully denied overtime pay because their employer misclassified them as “independent contractors” when they are actually employees under federal and state law. The Fair Labor Standards Act (FLSA) requires overtime pay only for employees.  Anyone that is a true independent contractor is not an employee under the FLSA and not entitled to overtime pay.

The FLSA does not cover independent contractor

To determine who is an employee and who is an independent contractor, the courts used the economic reality test.

To determine  whether a person is an employee or an independent contractor under the FLSA, the courts look to the “economic reality” of the relationship between the employee and employer. If the relationship between the two parties demonstrates  dependence, then the worker is an employee.

The economic reality inquiry is not governed by the “label” that the employer places on the relationship. The economic reality inquiry is not determined by the contracts signed by the employer and the worker. On July 15, 2015, the Department of Labor (“DOL”) issued an Administrator’s Interpretation (the “Interpretation”) on the application of the Fair Labor Standards Act’s (“FLSA”) “suffer or permit” standard in identifying employees who are misclassified as independent contractors. Although the Interpretation does not announce a new test for determining worker classifications, it reemphasizes the DOL’s belief that most workers are employees under the FLSA.

What is in the economic reality test?

To determine if someone is an employee, the courts and the DOL use the economic reality test.

  • The extent to which the work performed is an integral part of the employer’s business.
  • The worker’s opportunity for profit or loss depending on his or managerial skill.
  • The extent of the relative investments of the employer and the worker.
  • Whether the work performed requires special skills and initiative.
  • The permanency of the relationship.
  • The degree of control exercised or retained by the employer.

In layman’s term, an independent contractor should ask-

  • Does the employer have control over the manner in which the work is  to be performed?
  • Does the employee’s opportunity for profit or loss depending upon his managerial skills?
  • Who has the greater investment in equipment or materials required for the job?
  • Does the whether the service rendered require a special skill?
  • Is the duration of the work long enough to look like a permanent relationship?
  • Is the worker’s service an integral part of the employer’s business?

None of these factors are examined in relations to one another but none are more more than the other. While these factors are important, the overall focus of the inquiry is  economic dependence.  In other words, whether the individual is “in business for  himself” or is “dependent upon finding employment in   the business of others.”  The DOL has stated“The factors should not be applied as a checklist, but rather the outcome must be determined by a qualitative rather than a quantitative analysis”.