Independent Contractor vs. Employee
Do I have independent contractors or full-time employees? If you hired workers for your business, knowing the difference between these two designations is critical.
The Department of Labor final rule on independent contractors went into effect on March 11th. Full-time employees are entitled to minimum wage, overtime pay, and other benefits.
The final rule uses a six-factor analysis to determine if a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
These six factors include:
1) Opportunity for Profit or Loss Depending on Managerial Skill
Consider if they can negotiate pay for the work, if the worker accepts or declines jobs, chooses the order and/or time in which the jobs are performed, if the worker engages in marketing, advertising, or other efforts to expand their business or secure more work. If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee.
2) Investments by the Worker and the Potential Employer
Consider if investments by a worker are capital or entrepreneurial in nature. Independent contractor status is indicated by investments that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.”
3) Degree of Permanence of the Work Relationship
A worker is more likely an employee when the work relationship is indefinite or continuous. Independent contractor status would be supported when the work relationship is definite, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.
4) Nature and Degree of Control
If the employer sets the schedule, supervises performance of the work, limits the ability to work for others, uses technology to supervise the work, reserves the right to discipline workers, or restricts if workers can work for others or work when they choose. Control over prices/rates for services or marketing of services by the worker should also be considered.
5) Extent to Which the Work is an Integral Part of the Business
This factor does not depend on whether any individual worker is an integral part of the business, but rather whether the function they perform is integral to the business. A worker is likely to be an employee when the work is critical, necessary, or central to the employer's principal business.
6) The Worker’s Skill and Initiative
Employee status would be supported where the worker does not use specialized skills in performing the work or if the worker is dependent on training from the employer.
If you would like to discuss your current employee situation, or any other questions about your business, click Book A Meeting.