Whether a worker is an employee or independent contractor under the FLSA depends on the economic reality of the relationship, not the label selected by the company, a contract heading, the issuance of a Form 1099, or the worker's agreement to be called a contractor.
The Economic Realities Analysis
Courts evaluate multiple factors to determine whether the worker is economically dependent on the business or is genuinely operating an independent business. Relevant considerations commonly include:
- the nature and degree of control over the work;
- the worker's opportunity for profit or loss based on managerial skill;
- investments made by the worker and the potential employer;
- the degree of permanence in the relationship;
- the skill and business initiative involved; and
- whether the work is integral to the business.
No single label or factor necessarily controls. The analysis focuses on the actual relationship.
Why Classification Matters
A worker wrongly treated as an independent contractor may be denied overtime, minimum wage, payroll-tax treatment, benefits, unemployment protection, or other rights associated with employee status. Different employment statutes use different tests, so a worker can require separate classification analysis depending on the legal issue.
Common Warning Signs
- The company determines the worker's schedule, location, methods, or route.
- The worker performs the same core work as the company's employees.
- The relationship is indefinite or continuous rather than project-based.
- The worker has little meaningful opportunity to increase profit through business decisions.
- The worker has no independent customer base or business infrastructure.
- The company supplies most of the tools, systems, leads, or equipment.
Wage Recovery
If a worker should have been treated as a nonexempt employee, the FLSA may permit recovery of unpaid overtime or minimum wages, liquidated damages, and attorneys' fees and costs for the applicable limitations period.