Independent Contractors

Another reason why an employee may not currently be receiving overtime is the employer’s characterization of the individual as an “independent contractor” instead of as an employee. In analyzing whether a particular worker is an independent contractor—who is not entitled to overtime pay—or an employee, courts will focus on the economic reality of the relationship. As such, an employer’s labeling of a worker as an independent contract, either through a contract, human resource policy or other labeling, is not determinative of whether an individual is an employee entitled to overtime compensation. Instead, courts will focus on the following factors in determining employee status:

  • Degree of control. The degree of control that the alleged employer has over the individual. The focus is on whether the employer has a right to control; not whether such control is actually exercised. Factors include work direction, responsibility for such things as taxes, price setting, advertising and evidence of payment arrangements.
  • Investment of money. The relative capital investment of the worker compared against the investment of the alleged employer. Where an employer has provided a significant amount of risked capital and the worker has provided a minimal investment, an employee-employer relationship more likely exists. Items such as tools or labor itself are not the type of capital risks the law has in mind.
  • Opportunity to make or lose money. Where an employer unilaterally establishes the amount of profit or loss (through advertising, location and prices), an employment relationship more likely exists.
  • Permanency of relationship. Longer relationships lead more likely to a finding of an employment relationship versus a transient relationship.
  • Specialized skill and initiative. A combination of skill and initiative in finding work may support an independent contractor finding. The focus is on whether the worker is in business for themselves.
  • Whether the service rendered is an integral part of the employer’s business. An employment relationship is more likely to exist if the individual performs the primary work of the employer.

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