Think you know whether your workers should be classified as independent contractors? Take a shot at our short quiz to test your knowledge on employee misclassification!
1. Independent contractors are not covered by the FLSA.
TRUE. To be covered under the FLSA, one of the threshold requirements is for the worker to be an employee, and not an independent contractor. Because independent contractors are not covered, they are not entitled to minimum wage or overtime.
2. The mistake of misclassifying employees as independent contractors is easily rectified.
FALSE. Misclassifying workers as independent contractors can be extremely costly. Among other consequences, non-exempt employees misclassified as independent contractors would be entitled to back wages and overtime pay (and would be entitled to minimum wage and overtime on a going-forward basis). Further, employees can recover liquidated damages and automatic attorneys’ fees under the FLSA. Companies may also have to deal with a number of other potential liabilities, including those related to Social Security, unemployment insurance, local, state, and federal tax laws, and employee benefits (such as vacation, workers’ disability compensation, pension plans, stock options, etc.).
3. The government is not concerned about the misclassification of employees as independent contractors.
FALSE. The U.S. Department of Labor has a Misclassification Initiative, with the goals of detecting, remedying, and preventing employee misclassification. In February 2015, the DOL also entered into an agreement with the Texas Workforce Commission. The two agencies are now cooperating in enforcement and exchanging information regarding misclassifications. The DOL also recently published guidance on employee misclassification, which states, in their opinion, most workers are really employees under the FLSA.
4. If a worker’s contract states that the worker is an independent contractor, then he or she is not an employee.
FALSE. The title included in a contract, or given to the worker by the company, is not determinative. Instead, under the FLSA, the classification is based on the “economic reality” of the situation. In considering what the economic reality is, there are a number of different factors which should be considered. These factors include the degree of control the company exercises over the worker, the worker’s financial risk, the temporary nature or duration of the relationship, and the extent to which the work done is an integral part of the company’s business.
5. The fact that the worker has his or her own registered business and obtained his or her own licenses to perform the work does not mean that he or she is an independent contractor.
TRUE. These factors have little bearing on the economic reality of whether the worker is economically dependent on the employer. The worker will be classified as an employee if there are sufficient factors to prove economic dependency on the company. For example, if the company provides benefits to the worker, trains the worker, controls the worker’s schedule, prevents the worker from offering his or her services to other companies, the worker will likely be an employee, not an independent contractor.
6. Workers that are required to buy their own equipment and supplies are always independent contractors.
FALSE. Although this is a factor that may be considered, no factor by itself is conclusive. All the facts relevant to the relationship between the workers and the company will be considered to determine the economic reality of the relationship.
Given the DOL’s continued focus on enforcement, as well as plaintiff attorneys’ concentration on this area, companies are at a greater risk than ever to be the target of a misclassification action. To avoid the risks of potentially misclassifying workers, companies should conduct an audit and analyze whether its workers have been correctly classified.