Wage and hour laws cover employees, not independent contractors, so it is important to understand how state and federal laws define what an independent contractor is.
The FLSA considers workers to be independent contractors if they’re economically independent from the business. How can you tell if they are economically independent? The following questions must be considered:
- Does the company have the right to control how the individual performs the work, as opposed to simply accepting or rejecting a final product? The more the company controls the way the work is done, the more the worker looks like an employee.
- Does the worker have an opportunity for profit and loss? If the worker bears the economic risk of doing business, then that is a factor in favor of independent contractor status.
- Does the worker have any investment in equipment and facilities? The greater the investment, the more it appears that the worker is an independent contractor.
- Do the worker’s services require special skills? The more specialized the skills, the more likely it is that the worker is an independent contractor.
- How permanent is the relationship between the company and the worker? A long-term relationship— especially one that lasts for a year or more— is a factor in favor of employee status.
- Are the worker’s services an integral part of the company’s business? If so, it’s more likely that the worker is an employee. For example, someone who works for a drugstore as a pharmacist would probably be considered to be an integral part of the business.