Independent Contractors Determining Classification: Wage and Hour Issues
Employee or Independent Contractor?
Under the Fair Labor Standards Act (FLSA), the federal courts apply a six point test to determine whether an individual is considered an employee or an independent contractor. This test also focuses on how much control an employer has over an individual. Under the FLSA, federal courts consider the following:
1. Nature and degree of control the employer has over the individual
2. The individual’s opportunity for profit and loss
3. The individual’s investment in the business
4. The length of the relationship between the company and the individual
5. The skills needed to perform the task
6. The amount in which the individual’s work affects the company’s business
Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.