My previous article dealt with the standards used by the Internal Revenue Service at making a determination about the status of a worker as an employee versus an independent contractor. These standards are not, however, the only ones that apply to this critical question. The federal Fair Labor Standards Act (FLSA) also affects all employers and compliance with this sweeping law is essential to every employer.
Because the Fair Labor Standards Act applies only to employer-employee relationships, independent contractors are not covered by FLSA provisions. Court decisions interpreting FLSA coverage rules require that employers use an “economic reality” test in determining whether an employment relationship exists with respect to a given worker.
Similar to other tests, the economic reality test focuses on the degree of control exercised by the employer as an essential factor in determining whether an employer/employee relationship exists. While no single factor is controlling or decisive in determining whether an employment relationship exists, the facts and circumstances that courts and federal enforcement officials examine in deciding whether an individual is an employee or an independent contractor are:
• Control over manner of work. The degree to which the employer controls or directs the manner in which work is performed;
• Managerial skill involved. Whether the worker’s opportunity for profit or loss depends on his or her managerial skills;
• Permanent or Temporary basis. Whether the worker’s duties are performed for the employer on an ongoing or permanent basis;
• Importance of the work at issue. Whether the service performed by the worker is an integral part of the employer’s business;
• Ownership of work equipment. The extent of the worker’s investment in equipment or materials needed to perform the job; and,
• Dependency of worker on employer. The degree to which the worker is engaged primarily for the benefit of the employer.
Because there are multiple sets of standards to be considered and applied when making a decision or determination about a worker’s status, consultation with your company’s lawyer is strongly recommended. Employers should note that it is extremely important to prepare and execute an Independent Contractor Agreement should the employer determine that he or she intends to hire a worker as an independent contractor.
Douglas H. Flint is senior partner in the law firm of Flint, Connolly & Walker, LLP in Canton, Georgia, where he represents and assists both businesses and individuals with their legal matters.