State and federal regulators are increasingly acting to combat worker misclassification.
Before using independent contractors, it is imperative to verify that they are not actually employees. The issue is legal in nature so the legal principals must be thoroughly considered and applied. Mistakes, no matter how innocent, can result in costly lawsuits and significant legal penalties.
Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor.” In some cases, worker misclassification is intentional to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. Sometimes it occurs simply because the employer did not properly understand the law.
To aid the analysis, the Department of Labor (DOL) recently published a revised factsheet on worker misclassification. As the DOL highlights, an employment agreement stating that a worker is an independent contractor hold very little weight, if any. Rather, the actual nature of the working relationship is determinative. Over 25 states also apply the “ABC” test which is even more difficult to overcome (as many prominent trucking companies have been learning in recent court cases).
Below are several key factors that are generally considered when determining whether an employment relationship exists:
The extent to which the work performed is an integral part of the employer’s business. If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself.
The permanency of the worker’s relationship with the employer. Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee
The worker’s skill and initiative. The exercise of independent business judgment and the fact that a worker is in open market competition with others would suggest independent contractor status.
The relative investments in facilities and equipment by the worker and the employer. The worker must make some investment compared to the employer’s investment (and bear some risk for a loss) in order for there to be an indication that he/she is an independent contractor in business for himself or herself.
The nature and degree of control by the employer. This complex factor requires analysis of who sets pay amounts and work hours and who determines how the work is performed. An independent contractor is generally free to work for others and hire helpers and perform tasks under minimal control by the employer.
When an employer-employee relationship exists, workers must be compensated in accordance with myriad employment laws to include the Fair Labor Standards Act (FLSA), which covers minimum wage, overtime, and recordkeeping requirements. The failure to include employees as participants in employee benefit plans (pension and health) can expose the employer and its officers, directors and shareholders to significant personal liability under the Employee Retirement Income Security Act (ERISA).
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Employee vs. Independent Contractor: Can You Tell the Difference?
Author: Scarinci Hollenbeck, LLC
State and federal regulators are increasingly acting to combat worker misclassification.
Before using independent contractors, it is imperative to verify that they are not actually employees. The issue is legal in nature so the legal principals must be thoroughly considered and applied. Mistakes, no matter how innocent, can result in costly lawsuits and significant legal penalties.
Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor.” In some cases, worker misclassification is intentional to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. Sometimes it occurs simply because the employer did not properly understand the law.
To aid the analysis, the Department of Labor (DOL) recently published a revised factsheet on worker misclassification. As the DOL highlights, an employment agreement stating that a worker is an independent contractor hold very little weight, if any. Rather, the actual nature of the working relationship is determinative. Over 25 states also apply the “ABC” test which is even more difficult to overcome (as many prominent trucking companies have been learning in recent court cases).
Below are several key factors that are generally considered when determining whether an employment relationship exists:
The extent to which the work performed is an integral part of the employer’s business. If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself.
The permanency of the worker’s relationship with the employer. Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee
The worker’s skill and initiative. The exercise of independent business judgment and the fact that a worker is in open market competition with others would suggest independent contractor status.
The relative investments in facilities and equipment by the worker and the employer. The worker must make some investment compared to the employer’s investment (and bear some risk for a loss) in order for there to be an indication that he/she is an independent contractor in business for himself or herself.
The nature and degree of control by the employer. This complex factor requires analysis of who sets pay amounts and work hours and who determines how the work is performed. An independent contractor is generally free to work for others and hire helpers and perform tasks under minimal control by the employer.
When an employer-employee relationship exists, workers must be compensated in accordance with myriad employment laws to include the Fair Labor Standards Act (FLSA), which covers minimum wage, overtime, and recordkeeping requirements. The failure to include employees as participants in employee benefit plans (pension and health) can expose the employer and its officers, directors and shareholders to significant personal liability under the Employee Retirement Income Security Act (ERISA).
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
