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Independent Contractor vs. Employee A Checklist

On Behalf of | Aug 5, 2022 | Wage Theft

Independent contractors and employees are treated differently under federal wage and hour laws and regulations. According to the Fair Labor Standards Act (FLSA), only employees have the right to be paid a minimum wage and overtime compensation, while an independent contractor does not.

Determining whether you are an independent contractor rather than an employee goes beyond the label given by your employer. Federal laws discern your role by looking at the true nature of your work and your economic relationship with your employer.

If you believe your employer has improperly classified you as an independent contractor, We Stop Wage Theft can help.  Please contact us at 844-696-7492 or via email at [email protected]. You can also fill out our contact form.

Why Is Proper Employee Classification Important?

There are critical differences between an independent contractor and an employee. The status of an employee provides certain benefits and protections unavailable to contractors. Whether the law considers you an employee depends upon several factors concerning your relationship with the company. The difference in pay and other benefits are significant, which is why it is so important to have the proper classification for the type of work you perform.

Here are some significant differences between contractors and employees:

  • Independent contractors are technically self-employed, and they can perform work for multiple companies.
  • Employees are entitled to minimum wage and overtime compensation, whereas independent contractors do not have these legal protections.
  • Independent Contractors are subject to self-employment tax rather than the company taking taxes out of their paychecks.
  • Employees are typically subject to a higher level of supervision, and employers can dictate how their work is carried out and completed.

Can a court decide whether a worker is an employee or an independent contractor?

Yes. When a worker believes that a company has misclassified them as an independent contractor, they can file a lawsuit challenging this designation. While a number of state and federal laws govern whether a worker should be considered an employee, two types of tests are generally used to make this determination. We discuss these tests below. Keep in mind that the actual application of these legal tests is complicated, and the results in any particular case may be difficult to predict.

The Economic Realities Test – An Independent Contractor vs. Employee Checklist

Under the FLSA and most state laws, courts use the so-called “economic realities test” to determine whether a worker is an independent contractor or an employee. Your label in the employment contract is not enough to prove your status. The fact-based findings under the economic realities determine whether you are entitled to employee benefits and protections. Historically, the courts have considered many factors when deciding worker classification.

Here is a checklist of factors that a court may consider when determining whether you are an employee or an independent contractor:

1. The permanence of the working relationship

  • Do you mainly work with one company full-time or serve multiple clients at different times?

2. The skill required for your job:

  • Did you have to get special training (like a degree, license, or certification) to perform this job?

3. The amount of control your employer has over you:

  • Do you directly report to someone?
  • Do you have a set schedule, or do you make your own schedule?
  • Are you able to work outside of the company, or are you only allowed to work for this one company?

4. How much the company’s financial performance impacts your pay:

  • If your company profits, do you get paid more, or is your compensation the same regardless of company success?

5. Your investment in capital and equipment:

  • Do you provide your tools and equipment to perform the job, or does your employer give them to you?

ABC Test – Are You an Independent Contractor?

Some states, including California, Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia, use the so-called ABC test for determining your worker classification. This legal test is more worker-friendly than the economic realities test, making it harder for companies to prove that workers are contractors rather than employees.

To be considered an independent contractor under the ABC test, the employer must satisfy these three factors:

  • The worker is free from the employer’s control, both under a contract and in fact.
  • The worker’s services are outside the usual course of the employer’s business.
  • The worker is customarily engaged in an independently-established trade or business.

Each state listed above applies its own version of the ABC test, so it is hard to predict whether a particular job would qualify as an employment relationship rather than a contractor.

What should I do if I think I have been misclassified as an independent contractor?

Your employer may misclassify you as a contractor to avoid paying you your rightful wages.

If you believe your employer has wrongly labeled you as an independent contractor, please contact We Stop Wage Theft at 844-696-7492 or email us at [email protected] or you can fill out the form on this page.

We will promptly review your submission and let you know if you may be eligible to participate in a lawsuit for unpaid wages.

Do I Have to Pay Attorney’s Fees with We Stop Wage Theft?

No. We Stop Wage Theft attorneys handle claims for unpaid wages on a contingent fee basis. The lawyers don’t get paid unless you get paid.