Have You Been Misclassified as an Independent Contractor or Exempt Employee?

October 18, 2012
By Betts & Associates

In recent years the federal government and many states have begun to crack down on business owners who misclassify their workers as "exempt employees" and/or "independent contractors." Such misclassifications are illegal and an injustice to workers, particularly low-wage and immigrant workers, as it denies them basic rights afforded by the Fair Labor Standards Act (FLSA).

One of principal benefits of the FLSA is that it requires employers to pay non-exempt employees at least the federal minimum wage and paid overtime (one and a half times your regular hourly rate of pay) for all hours worked in excess of forty (40) in a week.

When business owners misclassify their employees as being "exempt" then they can require them to work much longer hours for way less money since they do not have to pay overtime. Moreover, if they classify their workers as "independent contractors" they not only save money on overtime but also on contributions they would normally have to make to Social Security, Medicare, and Unemployment Insurance (i.e., the payroll or withholding tax).

Companies that don't play by the rules also unfairly place their business competitors at a financial disadvantage since they are shelling out less to their workforce, not paying their fair share of taxes, and not abiding by terms of the FLSA.

How do I determine if I am an Exempt Employee?

To be considered an "exempt employee" you must meet two basic tests, the salary test and duties test.

Salary Test: An employee must be paid a salary (usually weekly or monthly), which he or she receives regardless of the number of hours worked. This means that the employee must be paid a salary for the entire week if he or she performs any services during the week and may not be docked for short term absences.

Duties Test: There are three so-called "white collar" exemptions that can be applied: executive, administrative, and professional. However, the ultimate basis for determining whether each of these duties triggers an exemption is whether or not the employee exercises "discretion and independent judgment" on the job. Employees who perform job tasks under strict supervision and work rules (such as clocking in and clocking out) are not typically considered exempt.

How do I determine if I am an Independent Contractor?
A company has to meet three essential standards in order to classify an individual as an "independent contractor" or someone who is self-employed and working under a 1099 tax form:

1.) The worker must be free from direction and control of the employer in the performance of the work;

2.) The worker's services must be performed either outside the usual course of an employer's business or outside of all the employer's place of business;

3.) The employee must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service being provided.

Misclassification of employees is a problem that exists in lots of industries, but it is especially common in construction, hotels, manufacturing, arts and entertainment, food and beverage service, and retail establishments.

If you believe you have been misclassified as an "exempt employee" or an "independent contractor" then you should seek advice from an attorney at Betts & Associates who will discuss with you over the phone or in person whether you have been cheated out of your rightful pay by your current or a former employer.

Anyone can seek legal counsel from Betts & Associates regardless of where you live. You may be entitled to receive a sizeable amount of back pay as a result of your inquiry.