Overtime Pay Laws for Independent Contractors
Independent Contractor Unpaid Overtime Attorney
There are significant differences in being classified as an “independent contractor” rather than an “employee.” One important difference is that The Fair Labor Standards Act the federal law that requires minimum wage and overtime pay only applies to employees. Independent contractors are not covered. This means that independent contractors do not have to be paid time and a half for working overtime. As a result, employers have a significant economic incentive to misclassify employees as independent contractors, and often do in an attempt to avoid paying overtime wages. Additionally, employers must pay social security, Medicare, workers compensation for on the job injuries and unemployment taxes on wages of employees. Independent contractors are individually responsible for paying income tax and self-employment taxes.
Merely labeling a worker an independent contractor or having them sign an agreement does not necessarily make them an independent contractor and not entitled to overtime. Because it is not always clear whether a worker is an employee or an independent contractor, multiple factors are considered. There is no set number of factors that qualifies a worker and this determination must be made on a case-by-case basis.
Factors indicating that a worker is an employee:
- Employer has the right to direct and control the worker (even if he does not do so)
- Paid on an hourly, weekly, or monthly basis
- Uses equipment, tools, and materials provided by the employer
- Receives predetermined earnings and cannot realize significant profits or loss
- Schedule dictated by the employer
- Trained by the employer, either formally or informally
- Receives benefits, such as insurance, pension, or paid vacation or sick leave
- The relationship between employer and worker is ongoing – not on a job or project basis
Factors indicating that a worker is an independent contractor include:
- A contract stating the worker is an independent contractor, although this is not determinative
- Free to determine how the work gets done
- Paid for each individual job
- Uses his own equipment, tools, or materials
- Can personally realize significant profits or losses in the business
- Works temporarily or on individual jobs
Independent Contractor Misclassification is Common. States are Leading the Fight.
Depending on the state, the Department of Labor finds that 11 to 30 percent of employers misclassify at least part of their workforce as independent contractors. Why so common? Because companies can save up to 30 percent in pay, taxes, and benefit payments per individual by paying them as contractors not employees.
Some states are tightening laws and regulations to stop employers from misclassifying their employees. For example, California passed a law last year to declare app drivers employees of the platforms that profit from them, and Uber and Lyft drivers have won court cases in states such as New York and Pennsylvania acknowledging that the drivers are employees.
Even if an employer improperly classifies an employee as an independent contractor, it can still potentially escape the tax obligations if there was a reasonable basis for doing so. Examples of a reasonable basis include:
- A longstanding, widely recognized practice of treating similar workers as independent contractors
- A court ruling treating workers in similar circumstances as independent contractors
- An IRS Revenue Ruling stating that similar workers are not employees
- A previous IRS payroll audit that did not determine that similar workers are employees
While an employer may be able to escape tax obligations, it will not be able to escape its overtime pay law obligations to the workers it misclassified. So long as the workers assert their claim within the applicable statute of limitations, they will be able to recover their unpaid overtime wages (potentially double), despite the reasons or beliefs that led the employer to improperly classify them as independent contractors.
A worker can get an official determination from the IRS on whether he is an employee or independent contractor by filing a form SS-8, although the process can take up to six months.
Why Care if You Are Legally Required to Receive Overtime Pay?
Given the significant amounts of pay that are at stake (often $10,000’s+ per worker), it is important that workers take the time to understand whether their particular job is one that is one that is legally required to receive overtime pay. Bosses and HR cannot be relied on for this critical information. There are strict time limits that apply to any claim to recover unpaid overtime, so procrastination can be costly.
Do You Need Help From An Overtime Attorney?
You can afford a lawyer – we work on a contingent fee, so there is absolutely no cost unless there is a recover. If you have any doubts as to your entitlement to overtime pay, you should contact the experts at The Lore Law Firm for a free and confidential review of your particular situation. Call 1-866-559-0400 or submit your information using our convenient Case Evaluation form.