Although employees are generally entitled to overtime, employers often deny their rights and refuse to pay what is owed. One area in which this frequently occurs is the misclassification of an employee as an independent contractor. The bottom line is, just because you are labeled an independent contractor (instead of an employee) does not, itself, determine your eligibility for overtime. If you’ve been classified as an independent contractor and have questions about overtime, let the experienced attorneys of The Lore Law Firm assist.
Important Facts About Federal Overtime Rules
The Fair Labor Standards Act (FLSA) is the federal law that governs overtime pay. Workers who perform more than 40 hours of work in a given week are entitled to overtime unless they meet one of the law’s strictly defined exemptions. Overtime is also known as time and a half because the hours worked over 40 must be paid at the rate of 1.5 times the worker’s regular hourly rate.
Importantly, however, the FLSA only applies to employees. Companies routinely use independent contractors to handle a number of tasks instead of asking their regular employees to take care of them. An example might be a company that hires a forensic accountant to help the firm trace money that was embezzled by a former employee. There’s nothing inherently wrong with a company choosing to classify an independent contractor as such. But because the FLSA does not protect contractors, there’s a strong incentive for employers to intentionally misclassify their employees as contractors.
For this reason, if the company that hired you considers you to be an independent contractor, you need to know whether you actually are one. It starts with understanding how misclassification happens.
Independent Contractor Versus Employee
An independent contractor, also called a 1099 employee because of the tax form this individual receives, is someone who works for him- or herself. These self-employed individuals have an established trade or profession by which they provide a service to various companies on a contract basis.
Contrast this with an employee, who works directly and permanently (or at least indefinitely) for one company on a continual basis. Whereas an independent contractor may provide services that are outside of the company’s usual scope of business, an employee does work that is directly in line with the company’s business objectives and purposes.
The IRS has developed a number of guidelines over the years to help employees, contractors, and employers alike better understand the differences between an independent contractor and an employee. If the company you work for has classified you as an independent contractor, these are a few signs that you have been misclassified (and that you’re actually an employee, entitled to overtime pay):
The company directs and controls your work. The degree of control and direction exercised by the company that contracted with you will play a major role in determining your status. For instance, does the company:
- Decide when you must show up to do the work?
- Set the number of hours you must work?
- Control what work will be done?
- Dictate the manner in which the work is to be done?
- Determine the method of pay?
The company provides the tools that you use. An independent contractor, by definition, should have an established business sufficient to do work for numerous companies. That means the contractor should generally have his or her own tools to do the work. If the company that hired you provides the tools, supplies, and implements to do the work, it’s more likely there is an employer-employee relationship.
Your earnings are set. If you are paid a predetermined, set amount – especially if that amount is regularly paid, like weekly or daily – you are likely an employee. Independent contractors, by contrast, can realize profits and losses in their work.
You provide services that align with what the company does. This element was mentioned above. If the work you provide is substantially different from what the company usually does, you may be an independent contractor. However, if the tasks you perform directly advance the business objectives of the company or line up with the services it routinely provides, you are likely an employee.
You have not invested in the business. Employees do not typically invest money or other resources into the companies that hire them. These risks are generally borne by the employer. By contrast, an independent contractor will have invested money or assumed some degree of financial risk in the type of work he or she performs.
You have a traditional employee relationship with the company. There are several questions that can be asked to answer this question. Is your relationship with the company brief or is it indefinite? Does the company provide you with standard employee benefits like health insurance and tax withholding? Although a contract is not controlling, it can evidence the type of relationship you have with the company.
Industries That Commonly Misclassify Employees
The following types of workers are routinely misclassified as independent contractors when they should be treated as employees:
- Anyone who obtained work through a staffing agency
- Disaster recovery and clean-up
- Energy/petro-chemical/oil and gas
- Installation work
- IT/Computer help desk
- Home healthcare
If you work in one of these industries and typically do more than 40 hours of work per week, you may be entitled to overtime pay.
Consequences That Go Beyond Overtime
Employees who are misclassified as independent contractors don’t just lose their right to overtime. They also miss out on:
- Workers’ compensation benefits in the event of injury performing their work
- Workplace rights such as lunch breaks, sick pay, and vacation pay
- The tax benefits of being an employee (contractors are fully responsible for paying their Social Security and Medicare taxes)
- Unemployment benefits in the event the work unexpectedly ends
- Benefits such as company health insurance plans and retirement plans
How Our Overtime Attorney Can Help You
If you believe you have been misclassified as an independent contractor, you could be entitled to twice the overtime wages that you were not paid. It is important that you speak with a knowledgeable overtime attorney right away. Your attorney will walk you through the following options for helping you regain the overtime compensation you earned:
- Communicating with your employer. Many employers make honest mistakes in misclassifying their employees as independent contractors. We can send a statement to your employer notifying them of their mistake and demanding the wages you deserve. Even if the employer rejects your request, this communication can serve as useful evidence later.
- Filing a complaint with the IRS. The IRS helps enforce independent contractor matters. We know how and in what manner to communicate your case to the IRS. Doing so may lead to an investigation that can assist not only you but other misclassified employees.
- Filing a lawsuit against your employer. Ultimately, if either your employer refuses to properly classify you or the IRS does not help, you could file a lawsuit against your employer. This can help you win your back overtime, liquidated damages in an amount equal to those wages, and attorney’s fees and court costs.
Contact Our Experienced Overtime Attorney
Are you concerned about your status as an independent contractor? Do you believe you are actually an employee and that your employer is taking advantage of you? Has your employer refused to pay you the overtime you earned? Connect with The Lore Law Firm today by filling out our client intake form.