Businesses don’t like paying overtime. One of the most common ways they try to dodge overtime is by calling workers “independent contractors.” However, just calling someone an independent contractor, and handing out a 1099, does not make it true. A true independent contractor operates his own economically independent business and is not subject to the close, day to day control of the employer. True independent contractors are exempt from the Fair Labor Standards Act (FLSA) overtime laws. But many workers who are actually employees are misclassified as independent contractors by companies trying to evade important legal rights such as overtime, employer taxes, and worker’s compensation. Stiegler Law Firm regularly represents employees who are owed overtime pay because they have been misclassified as independent contractors.
Overtime Rules for Independent Contractors
The overtime rules are simple. The FLSA requires businesses to pay hourly employees time-and-a-half for hours worked after forty in a workweek. Many businesses seek to sidestep this rule by calling employees independent contractors, and not paying overtime. But under the FLSA, it is economic reality, not verbal labels, that determine whether a worker is an independent contractor or an employee. As early as 1947, the U.S. Supreme Court held that: “Where the work done, in its essence, follows the usual path of an employee, putting on an ‘independent contractor’ label does not take the worker from the protection of the [FLSA].” Rutherford Food Corp. v. McComb, 331 US 722 (1947). That comment holds true today.
Companies often claim that an employee “agreed” to be an independent contractor and therefore cannot claim overtime. This is completely untrue. Overtime rights are guaranteed by federal law. The fact that you supposedly “agreed” to be called an independent contractor does not prevent you from claiming past due overtime. As one court noted, “Even if true, an employee’s desire to be misclassified does not insulate an employer from its obligations to comply with the FLSA.” The same is true of tax filings – when a company sends a 1099, rather than a W2, the worker has no choice but to file taxes as an independent contractor. The worker may still be a true employee, with a right to overtime. In short, the only issue that ultimately matters is the economic reality of the situation.
Economic Reality
So what does “economic reality” mean? This varies from case to case, as every situation is different. However, courts generally look at the following five factors:
- The degree of control exercised by the alleged employer;
- The extent of the relative investments of the worker and the alleged employer;
- The degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
- The skill and initiative required in performing the job; and
- The permanency of the relationship.
Not every factor will be relevant in every case. What is relevant in every case is the ultimate question of whether the worker is operating a “separate economic entity.” In other words, is the worker really in business for himself, with his own independent operations and a varied client list? Or does the worker work exclusively (or almost exclusively) for one company, taking instruction from that company’s supervisors, using that company’s tools or equipment. The answer to that question will tell whether overtime is owed.
Call or Email for Help Today
Penalties for unpaid overtime and independent contractor misclassification can include back wages, statutory penalties, and attorneys fees. If you believe you have been shorted overtime pay, click here to contact New Orleans overtime lawyer Charles Stiegler today, or call (504) 267-0777. The consultation is free. This is your money, you have worked for it, and you have earned it. We may be able to help you get it back.