An independent contractor is a person who does work for a company or someone else under a contract, or a case-by-case basis. They are not considered to be an employee because they were not hired as such.
An independent contractor does not have taxes withheld by their employer, and most employment and labor laws do not apply to independent contractors. An independent contractor provides goods and services on a contractual basis, typically for a set amount of time. Consultants and freelance workers are some examples.
One way of differentiating an independent contractor and an employee is by looking at their compensation method. If a person is on an employer’s payroll and consistently receives paychecks, they are an employee. There are some other stipulations that designate an independent contractor:
- The contractor provides all of their own equipment, material, and tools necessary to do their work;
- At any time, the worker can be discharged without due process. Additionally, the worker can choose whether or not to return to work, without fear of losing employment;
- The worker is in control of their working hours;
- Temporary work generally indicates independent contractor status; or
- The worker is paid by the project as opposed to being paid a salary, or an hourly wage.
Each state has their own rules to determine if a worker is an employee or an independent contractor. In general, a worker is an employee if:
- The company sets the work hours of the worker;
- The worker is not allowed to accept or reject projects at will;
- The worker is not allowed to advertise their services, or accept projects from clients other than those provided by the employer;
- The company provides all necessary tools, equipment, and materials; or
- The company is in control of how the job is performed as well as rates of production.
Under the Fair Labor Standards Act (FLSA), independent contractors are not considered employees, and as such are not afforded many of the rights and protections of an employee. Contractors are not covered by wage and hour provisions. The tradeoff seems to be the freedom to create your own schedule and receive payments outside of regulated payroll.
A contractor is entitled to joining a union and has the right to organize. However, a union for independent contractors is not entitled to the same privileges and protections as an employee union. An example of this is an employer having the right to deny bargaining with a contractor union.
Some employment laws still apply to contractors. A contractor has a legal claim for:
- Discrimination: Discrimination occurs when the worker is treated differently or denied a project due to their background or personal characteristics that are protected by law, such as sex, age, gender, religion, race, etc.;
- Injuries That Occur On the Job: Injuries incurred within the scope of your employment; or
- Intellectual Property: Intellectual property refers to property rights “vested in the intangible.” Examples include client lists, training techniques, inventions, etc. Copyright law also covers creative works such as songs, articles, and works of art. A contractor is entitled to legal protections to their work created for an employer.
As previously discussed, independent contractors do not receive many of the rights and protections of employees. Employers generally do not have to provide unemployment benefits or health insurance to contractors, which gives companies more flexibility and reduces their operating costs. Sometimes, employers will take advantage of this situation and deliberately miscategorize workers, so as to avoid state and federal employment and tax laws.
It is important to determine your status as either a contractor or an employee because you could be missing out on important compensation, rights, protections and benefits. Further, there are severe penalties for miscategorizing employees.
Employers who do so may face jail time as well as significant fines and penalties. If you have been misclassified as an employee, you could be entitled to back wages and liquidated damages.
Several types of law come into play when addressing disputes such as miscategorization. Employment law, tax law, and contract law are just a few examples. There is a lot of analyzation and nuance involved in these cases. If you have concerns as a contractor, or believe you have been misclassified, it is important to contact an employment attorney as soon as possible.
A knowledgeable and qualified employment attorney can help you determine your status, present you with all of your options, and help you reclaim missed compensation and other benefits. Additionally, companies can sue an independent contractor if they fail to fulfill the terms of the contract. An employment attorney can help represent you should the case go to trial.
If you are an employer concerned about misclassifying your employees, an independent contract attorney can help you understand state and federal laws, and help you audit your human resources policies to ensure compliance.