As a business owner, it is vital for you to understand the importance of the distinction between employees and independent contractors. To help you, I have written this article, so read on to learn what you need to know.
What Employers Need to Know about the Distinction between Employees and Independent Contractors
Whether a particular worker in your company should be classified as an independent contractor or an employee is a significant determination. In certain ways, independent contractors face disadvantages employees do not. For example, when compared to employees, independent contractors usually have to deal with a harder tax situation. However, being classified as an independent contractor also comes with certain advantages employees do not have, such as the ability to simultaneously work for several different companies and to set their own schedule.
The Fair Labor Standards Act Applies Exclusively to Employees
The first thing you need to know to understand the distinction between employees and independent contractors is that The Fair Labor Standards Act (FLSA) applies exclusively to employees. In other words, independent contractors do not obtain any of the benefits the act provides. This means that, if a particular worker is not classified as an employee as defined by the Department of Labor, then they are not protected by the FLSA, which is a huge disadvantage because the act provides employees with several significant benefits. For example, the FLSA states that employees who work more than 40 hours in any given week are guaranteed overtime pay. In addition, workers classified as employees are entitled to work for a reasonable number of hours and receive a federal minimum wage.
The Distinction between Employees and Independent Contractors is Not Always Clear
Another thing of which you should be aware is the fact that the test to determine whether a particular worker should be classified as an employee or an independent contractor may change in the near future. Recently, the Department of Labor published a proposal to change the way in which this determination is made. The proposed methodology involves classifying employees based on something called the “economic reality test,” the basics of which are fairly simple. In essence, the test examines an individual’s economic situation according to two core factors and three secondary factors. Essentially, these factors are used to classify the relationship between a given worker and his or her employer.
The first core factor is the nature and degree of control the worker has over the work, and the second core factor is the worker’s opportunity for profit or loss.
However, if the two core factors fail to clearly establish what type of relationship exists between a worker and his or her employer, then the three secondary factors come into play. These factors are:
- The amount of skill required for the job;
- The degree of permanence of the relationship between the worker and his or her employer; and
- Whether the work performed is part of an integrated unit of production.
Do You Have Any Questions? Contact Me Today
As you can see, the distinction between employees and independent contractors is very important because it helps employers determine how they should behave and treat their workers. Failing to properly classify a worker can get an employer into legal trouble. However, understanding the distinction between employees and independent contractors can also be useful for workers, as it helps them make sure they are correctly classified by their employers and receive the benefits and protections the FLSA provides.
If you have questions, I can answer them! Get in touch with me today by calling (305) 921-0976 or emailing me at [email protected] to schedule a consultation. Whether you are an employer who needs help classifying workers or a worker who needs help making sure they are being correctly classified, I can help you.
