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Employee or Independent Contractor?

Filed in Jobs, Minimum Wage, Overtime, Wage Enforcement By on July 15, 2015

The Wage and Hour Division is tackling employee misclassification because so much depends upon the answer to that question.

misclassification2-300x200Imagine working as a drywall installer building houses as an employee one day, but the next day, while performing the same work on the same site for the same company, you’re told you are now considered an independent contractor. You didn’t suddenly open a business of your own. Nothing about your work changed. But now, you’re told that since you’re no longer an employee, you’re no longer eligible for overtime pay, unemployment insurance, worker’s compensation or a host of other benefits that come with employee status.

That really happened to a group of workers recently, who we discovered were owed back wages after conducting an investigation. And unfortunately, this situation is all too common − with terrible consequences. Misclassified employees are often denied access to the critical benefits and protections they are entitled. Misclassification also generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. It forces workers to pay the entirety of their payroll (FICA) tax. It also tips the scales against all of the employers who play by the rules and undermines the economy.

Employer-Employee Relationships

In recent years, employers have increasingly contracted out or otherwise shed activities to be performed by other entities through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing and third-party management. Among the many consequences of these “fissured workplaces,” misclassifying employees as independent contractors is among the most damaging to workers and our economy.

Whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make. The Labor Department supports the use of legitimate independent contractors − who play an important role in our economy − but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.

Strategic Enforcement

The Wage and Hour Division continues to attack this problem head on through a combination of a robust education and outreach campaign, and nationwide, data-driven strategic enforcement across industries.

We also will continue to work with the IRS and 22 states on this issue in a variety of ways – through, for example, information sharing and coordinated enforcement.

Clarity for Employers

As fissuring and misclassification have spread, providing workers and employers a clear understanding of what makes a worker an employee may be more important now than ever. Accordingly, we have issued an administrator’s interpretation that analyzes how the Fair Labor Standards Act’s definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. It discusses the breadth of the FLSA’s definition of “employ,” and provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee.

Ultimately, the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor). We believe in providing employers all of the information that they need to comply, and this document, with its discussion of the relevant law and inclusion of numerous examples, will help employers.

Our goal is always to strive toward workplaces with decreased misclassification, increased compliance, and more workers receiving a fair day’s pay for a fair day’s work.

Dr. David Weil is the administrator for the U.S. Department of Labor’s Wage and Hour Division

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Comments (19)

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  1. Andrew S. says:

    Where is the text of the Q&A? Where can I pose a question to Secretary Perez about worker misclassification? How is the classification of Graphic design professionals, who generally work freelance or on a contract basis, analyzed?

  2. Ronald Burnett says:

    I recently worked for a company that thinks they are above the law. Having ran a company of my own for 32 years properly by the book I explained to them why they could not treat me like an employee and not pay any of the requirements. They slowly phased me out by reducing work given to me until there was none. I know this damages our economy and makes an unfair advantage over the companies doing it properly. LG Satellite in OKC is violating all requirements. i.e irs,ok tax comm.,labor,work comp., ss and on and on.

    • Lucy J. says:

      Ronald, I’m currently in this situation, myself. The company hired me without telling me that I was going to be an independent contractor, so my negotiated salary (during the interview process) became sort of a joke. They didn’t inform me of the contractor status until a few days after I started working for them, at which point they asked all of us to sign contracts. They knew what they were doing; it was all planned ahead of time, I’m sure of it.

      At the end of 2015, we had a company meeting about profit sharing, and I assumed they were going to switch everyone to employee status at that time. Nope. I just spend my entire “vacation” (when the office was closed) working on a project for which I was not paid anything, even though it isn’t part of the contract I signed.

      I brought this employee status situation to their attention a few days ago and was told that if I wanted to be called an “official” employee, everyone would have to take a 15 percent pay cut just to make me feel better. Obviously they know they are in the wrong and are shifting blame where it doesn’t belong. I plan to look for employment elsewhere or start my own business in the next three months because I don’t want to work for unethical people.

  3. Cori says:

    We work with customers every day as contractors so am used to not having those benefits, but I have many friends who work for companies that do provide benefits and I cannot imagine the shock they would go through if the suddently became independant contractors.

  4. McGaughey, Patricia Ann says:

    I own the one ton p/u that I pull camper trailers with. Out of the northern Indiana area. I have always received a 1099, at the end of each year, and pay my own taxes. I cover ALL my expenses of each trip. Reimbursed only for tolls and washing of the units. I have considered myself as an O/O-Self Employed Independent Contractor. Why am I “Required” to fill out an Employee application for the job? With All the pertainable Employee application forms. None of which Independent Contractor, at the heading. I don’t fill I should be made to feel like I won’t have any work w/company. I have a signed Lease Agreement, why then do I have to fill out forms calling me an Employee?? Are there any gov. employment forms, specifically for “O/O – Self Employed Independent Contractors”??? Need fast response. Do I fill out W-9 ? Fill out ” CORRA”screening & extream background check? “Investigative Consumer Report” (under FCRA.15U.S.C.et seq.)?? Driver Application for Employment (under 49CFR391.23d &e)? Form “USCIS form I-9…debt of Homeland Security? None of this seems to be nec. They don’t take out taxes, pay for any of my truck maintenance , fuel, repairs, I only make Mileage for each trip I do. I have been told, in the past, that I can’t be fired, just limited in the work I get. That I am not an Employee. Under Federal DOT Rules & Laws, could you explain . I have driven co. trucks before, and filled out LESS paperwork than this.! Thank you, Patricia A McGaughey 1136

  5. Robert Watkins says:

    I have a question about my wages earned. The total of gross is not equal to what I earn an hour. And employer refuses to pay what is right and fair. This has happened for three weeks now. Was told if you don’t like how you are getting paid then you need find a new job.

    • Tiffany Koebel says:

      Hi Robert, please contact our Wage and Hour Division for help: 1-866-4USWAGE (1-866-487-9243) or http://www.dol.gov/whd/contact_us.htm.

  6. Willie Troy says:

    Question. I am contracted to a truck company. I was informed after the contract was signed that my first week pay would be held back for a week. I am contracted to the company, I am not a company employee. Is this legal to hold my pay?
    Thank you for any information you can provide on this matter.

    • Tiffany Koebel says:

      Hi Willie,
      Please contact our Wage and Hour Division: 1-866-4USWAGE (1-866-487-9243) or http://www.dol.gov/whd/contact_us.htm.

  7. troy says:

    I filed a charge with the EEOC in the southern region in mid Nov,of 2015 on Dec 4 of 2015 I got a letter in the mail stating that no finding of unfair pay by my employer was found. So they dismissed the case and put a check in the box pertaining me my rights to sue in court. Lets keep in mind that I drove 2hrs to file this charge and I didn’t hear anything by phone,email or regular mail from the EEOC before they sent me and the employer their decision. Unfair Pay is really a big issue at this job. You cant justify a complaint if you don’t work within or comply with workers who work their. An Employer will not give you good information.

  8. Rosa says:

    What can I do I started working for a company and I got my first check , but it was a personal check. The owner said that he has no money to pay me and my waged from $11.00 went down to $8.75. And he said that I was a contractor and can’t claim taxes. What can I do??

    • Tiffany Koebel says:

      Hi Rosa,
      Please contact our Wage and Hour Division: 1-866-4USWAGE (1-866-487-9243) or http://www.dol.gov/whd/contact_us.htm.

  9. Peterror lenz says:

    Please investigate securitas security

  10. James says:

    I worked – classified as an independent contractor – for a suburban taxi co for about a year and a half. The the most clarifying factor which differentiates an employee from an independent contractor seems to be the degree of control exacted by the employer over the worker. In my tenure with this taxi co., they overtly micromanaged the hour-to-hour activities of the ‘independent contractors’ to which they set schedules and taxis for. I wonder if it’s not as overt as I think it is; we were often yelled at for not communicating our locations, etc., throughout the shift. The company seems to be seriously violating the labor laws denoting this aspect. How could herb be so audacious, if I am correct?

  11. Dawn says:

    Hi.. Need to know where to go with my issue. Just recently received a surplus with my company. They have within union contract that my job title can be considered a lateral to another job title(which they -meaning union and company say is the same) However our job is not the same nor is the pay… I am going from a $30 an hr job to sa $18 hr job.. The advised the $18 is 60% of pay and the rest can be made in sales. My issue is at the present time my pay is guaranteed.. Not based on sales nor is my title presently mandated to sell. How is this lateral? Where can I go to get more information on my rights? Also there is a group of us questioning and have this concern… Much appreciated for your assistance

  12. Ashlee says:

    This has been go in on far to long in the trucking industry. It`s about time.

  13. Casey says:

    First let me thank you guys and tell you how much this blog has helped. I work for a concrete company in Alabama and they required us to sign a sub contractor form, mine wasn’t even mentioned for a week or so. I owe taxes over $3000worked 60 to 80 hours a week most of the time. I was paid hourly and was told times to arrive and leave work also drove company truck and used company equipment. There fired me January 6th and could not give me a reason. Personally I think they don’t want to pay my rate which was only 13/hr. They are known to be cruel employers. no break or even a lunch lots of times. I went to another company and they offered me 17 an hour with benefits and w2 then it hit me how much money they are stealing from employees. Anyways can you guys help me???

  14. Hope Marshall says:

    I was hired as an independent contractor to drive. The contract I had with them clearly stated I was an independent contractor and they didn’t control us. I had to pay 60.00 to register with the company. Which they had contracts that you were “assigned” to. The company I ended up assigned, withheld my pay for two weeks and has full control of everything including my clothes. I was dismissed from the assigned company after several disagreements and the supervisor nit-picking my descisions resulting in the main contracting company releasing me as well. I was even told how to file my 1099 so I wouldn’t get audited. I feel that both companies are trying to scape goat the system.

  15. Monica says:

    I worked as a full time cashier in a gardening store. My employer considered me an independent contractor. I plan on blowing the whistle w/ the irs if he sends me a 1099. He cheated me out of overtime. Can the dol help me be made whole?