Many people do not realize the importance to differentiate between employees and independent contractors. Even though both employees and independent contractors may seem to have similar tasks and roles for an employer, compensating employees and independent contractors are very different.
The Fair Labor Standards Act and Independent Contractors
In order to discuss independent contractors, it is important to understand what the Fair Labor Standards Act (FLSA) says about them.
The FLSA sets several factors that are used to determine whether an individual is an independent contractor:
The extent to which the work performed is an integral part of the employer’s business.
Whether the worker’s managerial skills affect his or her opportunity for profit and loss.
The relative investments in facilities and equipment by the worker and the employer.
The worker’s skill and initiative.
The permanency of the worker’s relationship with the employer.
The nature and degree of control by the employer.
It is monumentally important to note that a contract between an individual and an employer stating that this individual is an “independent contractor” does not automatically make the individual such. Nor does both parties calling the individual an “independent contractor” make the individual an independent contractor. Instead, the underlying nature of the work relationship determines whether the individual is truly and independent contractor.
The Fair Labor Standards Act provides federal standards that determine how employees are compensated for normal and overtime hours. In order for an individual to be able to be compensated according to the FLSA, one must be an employee as oppose to an independent contractor.
Determining an Independent Contractor’s Pay
Once it is determined that an individual is an independent contractor, an employer may face issues while calculating the contractor’s pay. Since independent contractors are not considered employees under the FLSA, the contractors are not entitled to overtime pay regardless of the amount of “overtime” hours the contractor works.
Employers may hire temporary labor in order to assist in a rush period while thinking that these workers are contract workers and are not entitled to overtime; however, this is definitely not the case—again, one must look to the nature of the working relationship and not an agreement as to what the working relationship is.
One cannot undermine the importance of determining whether one is an independent contractor or employee as per the standards of the FLSA or the standards set out by the Internal Revenue Service (IRS). If one is considered an employee under the standards of the FLSA or IRS, no contract, agreement, or any amount of paperwork can change the characteristic to being an independent contractor.