Are Your Workers Properly Classified as “Employees” or “Independent Contractors”?

 by Anne Zachritz

There is no “bright line” definition of an “employee”. The Department of Labor and the courts use an “economic realities” test to determine whether the worker is properly classified, and consider the following factors:

  • Whether (and to what degree) the company retains the right to control the manner and method of the worker’s work
  • Whether the worker’s services require any special skills
  • Whether the services performed by the worker are an integral part of the company’s business
  • Whether the worker has any investment in his or her services
  • The permanency of the relationship

Why do the Department of Labor, the Internal Revenue Service and related state agencies care?

  • Employees are protected by federal and state workplace protection laws (such as the Fair Labor Standards Act), while independent contractors are not protected
  • Companies pay their share of Medicare and Social Security for their employees, but not for their independent contractors
  • Companies withhold federal and state income taxes for their employees, but not for their independent contractors

In the last four years, the Department of Labor has collected nearly $20,000,000.00 in back wages for workers who were improperly classified as independent contractors when they were determined to be employees and thus entitled to minimum wages and overtime pay.

Companies should conduct self-audits to determine whether its employees are properly classified before the Department of Labor, the IRS or related state agencies demand an audit.

To discuss worker classification, contact Anne Zachritz at (405) 272-9241 or aezachritz@andrewsdavis.com.


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