Have You Been Hired as an "Independent Contractor"? Your Proper Title May Be "Employee" - and You May Be Entitled to Overtime

BOCA RATON, Fla., Jan. 5, 2012 /PRNewswire/ -- In these tough economic times, employers are increasingly using another ploy  to salvage their bottom line: misclassifying workers who are truly employees as independent contractors. By slapping the label of "independent contractor" on a worker it actually treats as an employee, an employer tries to avoid numerous obligations, including the legal requirement to pay overtime under the Fair Labor Standards Act ("FLSA").

According to Nancy Leppink, deputy director of the U.S. Department of Labor's Wage and Hour Division, the practice of misclassifying workers is "more pervasive" than ever, and it has jumped from the construction and home building industry to restaurants, health care and government contractors. FedEx was recently found to have misclassified workers and paid millions to its drivers who were improperly classified as independent contractors.

Fortunately for workers, mere labels do not control their status as either an employee entitled to overtime wages or an independent contractor not entitled to overtime. That status is determined by the "economic realities" test, which looks at a number of factors, including the degree of control an employer exercises over a worker, including the time, place and manner of the performance of work, as well as the worker's economic dependence on the employer.

According to Employment Law Attorney Gregg Shavitz of the Shavitz Law Group, if an employer determines what duties a worker is to perform; where, when and how he or she is to perform such duties; and provides the materials to perform such duties, then the worker likely is an employee - and is entitled to overtime wages for hours worked above 40 hours in a week. If the extent of the worker's duties are such that there is no or limited opportunity to perform work for others, then that fact provides further indication that the worker is an employee. A true independent contractor has the ability to accept or decline work; determines when, where and how work is to be performed; provides the materials necessary to perform the work; and contracts directly with clients or customers.

Notably, the FLSA utilizes the broadest possible definition of employee, which means that even if a worker does not fall within the definition of an "employee" for some purposes – for example, state workers' compensation benefits,– that same worker still may be considered an employee pursuant to the FLSA.

Avoiding the payment of overtime wages is only one reason an employer may misclassify an employee as an independent contractor. According to the Government Accountability Office ("GAO"), the IRS loses millions of dollars due to employees being misclassified as independent contractors. Avoidance of federal employment taxes, including payroll taxes, has become another motivation for misclassifying employees, as is the avoidance of paying other state and local benefits, such as unemployment compensation.

With deep cuts to their budgets, governments are looking for revenue sources and for companies misclassifying employees, this is not good news. Like the DOL, the IRS has made the issue of misclassification of employees a priority.

Recently, the IRS implemented an amnesty-type of program whereby employers who have misclassified employees as independent contractors may pay only a portion of their tax liability if they voluntarily reclassify "independent contractors" as employees. Notably, participation in this IRS program does not relieve an employer for other liabilities for misclassification, including overtime. Thus, if an employer avails itself of the IRS program and reclassifies former independent contractors as employees, then this indicates that the employer may owe unpaid overtime wages.

Further, if an employer fails to properly report wages to the IRS, an employee could file a private cause of action for actual or liquidated damages. In this instance, the district court has discretion to award attorney's fees, requiring that the employer also pay the employee's legal fees.     

For employees, further investigation into the employer's other obligations, including the requirement to pay overtime under the FLSA, may be warranted. "Workers who have worked more than 40 hours for an employer within one or more work weeks within the past three years but did not receive time-and-a-half wages for those overtime hours because they were classified as an independent contractor, may have been misclassified  and may be owed overtime wages plus other penalties from the employer," says Shavitz.

For more information about misclassification and workers' rights, the Shavitz Law Group created the website www.helpingworkers.com.  

Further questions can be answered by Shavitz Law Group by calling 888-599-2437 (888-59-WAGES).   This is a free community service provided by the law firm.

The Shavitz Law Group, P.A., founded in 1999, represents employees in thousands of unpaid overtime and minimum wage claims in both individual cases and collective/class actions in Florida and across the United States each year. 

SOURCE Shavitz Law Group, P.A.