Understanding whether you are an employee or an independent contractor under the Fair Labor Standards Act (FLSA) is critical to knowing your rights and protections under the law. The U.S. Department of Labor has issued regulations (29 CFR part 795, effective March 11, 2024) to clarify how to determine a worker’s classification.
Why Does Classification Matter?
Employees are entitled to protections under the FLSA, including minimum wage, overtime pay, and other legal safeguards. Independent contractors, on the other hand, operate their own businesses and do not receive these protections. The key to classification lies in the economic reality test, which examines whether a worker is economically dependent on an employer or truly in business for themself.
The Economic Reality Test
The economic reality test consists of six key factors to determine whether a worker is an employee or an independent contractor:
- Opportunity for Profit or Loss Depending on Managerial Skill
- Does the worker negotiate their pay, accept or decline work, or make independent business decisions?
- If the worker’s earnings are dependent on their own business efforts, they are likely an independent contractor.
- If the worker’s earnings rely on work assignments from the employer, they are likely an employee.
Example: A landscaper working for a company without control over assignments is likely an employee. A landscaper who markets their services, sets their own rates, and hires helpers is likely an independent contractor.
- Investments by the Worker and Employer
- Are the worker’s investments capital or entrepreneurial in nature?
- Employees typically do not make significant business investments.
Example: A graphic designer using company-provided tools is likely an employee. A designer who purchases their own software, markets their services, and rents office space is likely an independent contractor.
- Degree of Permanence of the Work Relationship
- Continuous work relationships indicate employee status.
- Project-based, non-exclusive work suggests independent contractor status.
Example: A cook working for the same venue every week is likely an employee. A cook preparing meals for different events and venues is likely an independent contractor.
- Nature and Degree of Control
- Who determines schedules, pricing, work assignments, and supervision?
- More control by the employer indicates employee status.
Example: A registered nurse with a fixed schedule and supervised work is likely an employee. A nurse who sets their own prices and works for multiple clients is likely an independent contractor.
- Extent to Which the Work Performed is Integral to the Employer’s Business
- Is the work essential to the employer’s main business function?
Example: Farmworkers picking tomatoes for a tomato farm are likely employees. An accountant performing tax services for a farm is likely an independent contractor.
- Skill and Initiative
- Is the worker using their skills in a way that demonstrates business initiative?
Example: A highly skilled welder following company instructions is likely an employee. A welder marketing their own specialty services and seeking clients is likely an independent contractor.
Other Things to Consider
- No single factor solely determines a worker’s status, nor is any individual economic reality test factor—or combination of factors—more important than the others. Rather, the working relationship should be assessed based on the totality of the circumstances.
- Titles and labels (such as “freelancer” or “contractor”) do not determine employment status.
- Signing an independent contractor agreement does not automatically make a worker an independent contractor.
- Receiving a 1099 form instead of a W-2 does not necessarily mean a worker is an independent contractor.
- Factors like where work is performed or how a worker is paid do not solely determine classification.
Employer Responsibilities Under the FLSA
If a worker is classified as an employee, the employer must comply with the following FLSA requirements:
- Minimum Wage: Employees must be paid at least $7.25 per hour (or the state/local minimum wage, if higher).
- Overtime Pay: Employees must receive 1.5 times their regular pay rate for all hours worked over 40 per week, unless a relevant exemption applies.
- Recordkeeping: Employers must maintain proper wage and hour records.
- Retaliation Protections: Employees are protected from employer retaliation when asserting their rights.
Are You a Worker Who Has Been Misclassified?
Worker misclassification is a serious issue that can deny workers fair wages and benefits. If you believe you have been misclassified as an independent contractor, you may have legal recourse.
Free, No-Obligation Case Evaluation
At Kehoe Law Firm, P.C., we advocate for workers’ rights and fight for fair treatment under the law. If you have questions or suspect you’ve been misclassified, reach out to us for a free, no-obligation evaluation of your potential legal claims.
📞 Michael Yarnoff, Esq. – (215) 792-6676, Ext. 804
📧 Email: [email protected] | [email protected]
No-Cost Legal Assistance
Our class action legal services are provided on a contingency-fee basis, meaning you are not responsible for any fees or litigation expenses.
Source: U.S. Department of Labor, Wage and Hour Division, Fact Sheet #13
