While the Fair Labor Standards Act (FLSA) covers most employees, it does not cover independent contractors or “1099” contractors. Independent contractors generally are self-employed workers who have the freedom to determine what work will be done and how it will be done. The temptation for many businesses to misclassify their employees as independent contractors is undeniable. Businesses that misclassify employees as independent contractors avoid paying many employment-related expenses — costs like payroll taxes and withholding, workers’ compensation premiums, unemployment taxes and health insurance.
Independent contractors also do not receive the same workplace protections that employees do. In addition to not being eligible to receive minimum wage and overtime compensation, independent contractors generally cannot pursue employment discrimination claims under Title VII of the Civil Rights Act of 1964 or obtain family or sick leave under the Family Medical Leave Act. Not surprisingly, many companies seek to classify their workers as independent contractors even in cases where the worker is actually an employee.
In setting out to determine whether a worker is an employee or an independent contractors, courts increasingly look at a series of factors:
If the work performed by the worker is integral to the employer’s business (e.g. washing cars at a car wash or decorating cakes at a specialty cake shop), the worker is likely to be an employee.
If the worker is not in business for himself and does not face the possibility of a profit or a loss based on managerial decisions like who to hire, what to purchase and how to advertise, he is more likely an employee.
A worker is more akin to an employee if he does not have specialized skills and does not operate his or her own independent business. Operating one’s own business would require a worker to make business decisions like what bids to accept, in what sequence to do the work, and what materials to purchase — all skills and judgments which suggest that the worker is an independent contractor.
A worker who has not made a business investment in facilities and equipment such that the worker and the business share the risk of loss is more likely an employee.
A more long-term, established relationship indicates that the worker is likely an employee, not an independent contractor.
A worker who does not set his own pay rate, work hours, and does not have the authority to determine how the work should be done is more likely to be an employee. However, even in situations where the worker is subject to minimal control (e.g. a worker who works from home or a worker who sets his own hours), that worker may still be an employee if he or she does not possess meaningful control over working relationship.
While none of these factors alone determines whether a worker is an employee or independent contractor, a worker is far more likely to be deemed an independent contractor if the worker is in business for himself and is not economically dependent on the employer. Importantly, a written agreement which states that a worker is an independent contractor or the fact that the worker was issued 1099s for the work has no impact on whether the worker’s status as an employee or independent contractor.
If you believe you may have been misclassified as independent contractor, call the Nolan Law Office immediately for a free consultation with our Chicago employment attorneys today. You may be entitled to recover unpaid wages such as unpaid minimum wages and overtime compensation, liquidated or “double” damages, interest, and attorneys’ fees. Employers may also be subject to other civil penalties including back tax penalties and interest, unpaid social security and federal unemployment contributions, and unpaid workers’ compensation premiums.
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