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Why Employee vs. Independent Contractor is an Important Distinction Under the FLSA

Whether a worker be classified as either an employee or independent contractor (IC) is a very significant determination. In some ways, independent contractors face disadvantages relative to employees. For instance, independent contractors have to grapple with a disparate tax situation when compared with employees; they also may miss out on benefits, overtime, and other perks. However, independent contractors also have some advantages when compared with employees, such as the ability to work for multiple companies simultaneously, and the freedom to establish their own schedule.

In this post, we will discuss why the distinction between an employee and an independent contractor is important from the standpoint of the Fair Labor Standards Act (FLSA).

The FLSA Applies Specifically to Employees

The first point to make is the fact that the FLSA applies specifically and exclusively to employees. In other words, independent contractors are not eligible for the benefits and protections provided by the FLSA. Immediately, we can therefore see precisely why the distinction between employees and ICs is so critical: if you’re not an employee (as defined by the Department of Labor), then you don’t qualify for the perks of the FLSA.

The Fair Labor Standards Act provides employees with a host of key benefits. For instance, employees protected by the FLSA are guaranteed overtime pay (defined as “time and a half”) for hours worked in excess of 40 in a given week. Employees are also entitled to be paid the federal minimum wage, and to work reasonable hours. The reasonable hours protection applies especially to young workers under the age of 16.

What’s more, the FLSA also imposes a recordkeeping requirement on employers. Employers are required to keep records on wages earned, overtime pay, hours worked, personal information, and so forth. The FLSA also governs employer behavior with respect to fair practices and compliance with various employment laws. Without this act, employers would likely be considerably less regulated than they are today when it comes to employee treatment.

The Economic Reality Test May Alter Classification

Another thing which readers should be aware of is the fact that the test for sorting workers into one category or another may change in the near future. Recently, in late September, the Department of Labor published a proposal for a change to the methodology for determining employees and independent contractors. In this newly proposed methodology, the classification would be based on something referred to as the “economic reality test.” A full treatment of this test is beyond the scope of the present article – and is not necessary, given that we’ve already covered this in-depth before – but the basics of the test are fairly simple. The economic reality test will examine a person’s situation according to 5 separate factors: 2 core factors, and 3 secondary factors. Essentially, these factors will be used to assess a given worker’s relationship to the employer; if the worker is relatively economically dependent on the employer, then that worker will be classified as an employee.

Contact Trembly Law to Learn More

As you can see, the distinction between an employee and an independent contractor is quite important. The benefits, protections, and perks provided by the FLSA are quite expansive, and so workers should be sure that they receive the correct classification. If you’re curious about the FLSA, or the proposed DOL rule change, or about the implications of your worker status, contact the Trembly Law Firm today. Call us at (305) 431-5678.

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