Hiring independent contractors rather than employees can be advantageous to a business. It eliminates payroll taxes, workers’ compensation, minimum and overtime wages, unions, and the need to comply with the myriad of employment laws that offer employees critical benefits and protections. But misclassification of employees as independent contractors can create serious unpaid wage liability under the Fair Labor Standards Act and not just for the business–the FLSA imposes individual liability on the day-to-day business managers. This is one classification decision business owners and managers need to get right.
It is true that the Fair Labor Standards Act does not apply to independent contractors. But when is a worker an independent contractor? “To determine whether an individual is either an employee or an exempted independent contractor, courts look to the economic reality of the relationship between the parties, and whether that relationship demonstrates that the alleged employee is economically dependent on the alleged employer.” Dimingo v. Midnight Xpress, Inc., 325 F. Supp. 3d 1299, 1310-11 (S.D. Fla. 2018). The Eleventh Circuit has considered six factors in determining whether economic dependence exists: (1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; (6) the extent to which the service rendered is an integral part of the alleged employer’s business. Id. “The touchstone inquiry is ‘whether the alleged employee is economically dependent on the alleged employer or whether, instead, the alleged employee is in business for him or herself.’” Id. at 1311 (internal citation omitted). (emphasis supplied)
The Eleventh Circuit and its district courts have found an individual in business for himself or herself in various work relationships, including home satellite and entertainment system installer, security guard, political canvasser, drivers, web designer and business president, unpaid intern, home remodeler (handyman), sales person, and teacher. In each case, the individuals in part or in whole owned their own businesses; had special skills; paid for work-related equipment, materials and other expenses which they claimed as business expenses on their tax (corporate or personal) forms; had the ability to hire employees or subcontractors; had the ability to work at the same time for other entities including the defendant’s direct competitors; scheduled their own work without regard to minimum or maximum hours; did not punch a time clock; worked outside of defendant’s office without defendant “looking over the plaintiff’s shoulder;” could decline work or be taken off projects upon request without penalty; signed professional service agreements to work as independent contractors; and accepted 1099 tax forms and payments to themselves and their businesses without objection.
For further information about what makes an individual an independent contractor or an employee under the FLSA, see the US Department of Labor Wage and Hour Division website.