Monday, June 30, 2008

Do wage and hour laws apply to independent contractors?

Every once in a while I'll answer a question that comes from my readers. Sometimes a question comes by email. Other times (to break down the 4th wall) they come from a search someone ran to find the blog.

Last week, someone asked, "Do minimum wage laws apply to 1099 independent contractors?" The answer is no. The FLSA (and Ohio's parallel wage and hour laws) only apply to employees.

But, companies should tread very carefully before classifying a worker as an independent contractor. Among the factors that the Department of Labor will examine in determining whether one is an employee or a contractor are:

  1. The extent to which the services rendered are an integral part of the principal's business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor's investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor's opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

If a company errs by misclassifying an employee as a contractor, it would be liable for back wages (up to the minimum wage if the hourly rate is less) and unpaid overtime for two years, or even three years if employer was trying to willfully avoid the FLSA.

In other words, I would think long and hard before paying a worker like a contractor, and would not do so without some input from an employment lawyer and a written agreement setting forth the terms of the relationship.

To whoever typed that search into Google, thanks for the question. If anyone has any topics they'd like to see covered, email me and I'll do my best to accommodate.