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“Independent Contractors” and Employee Misclassification

The U.S. Department of Labor has found that the misclassification of employees as independent contractors is an alarming trend, particularly in industries that often employ low-wage, vulnerable workers and in which the Wage and Hour Division has historically found significant wage violations. The practice is a serious threat both to employees entitled to good and safe jobs, as well as to employers who obey the law. Too often misclassified employees are deprived of overtime and minimum wages, and are forced to pay taxes that their employers are legally obligated to pay.  Many employers will also attempt to avoid liability for Pennsylvania workers compensation or unemployment compensation benefits by claiming an employee is an “independent contractor”.  Consequently, honest employers have a difficult time competing against those who fail to follow the law.  Under the Fair Labor Standards Act (FLSA), an employment relationship must be distinguished from a strictly contractual one. An employee – as distinguished from a person who is engaged in a business of his or her own – is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he or she serves. The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their hourly rates of pay for hours worked beyond 40 per week. Additionally, accurate records of employees’ wages, hours and other conditions of employment must be maintained.

In order for the FLSA’s minimum wage and overtime provisions to apply to a worker, the worker must be an “employee” of the employer, meaning that an employment relationship must exist between the worker and the employer. The FLSA defines “employ” as including to “suffer or permit to work”, representing the broadest definition of employment under the law because it covers work that the employer directs or allows to take place. Applying the FLSA’s definition, workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees. On the other hand, independent contractors are workers with economic independence who are in business for themselves.

A number of “economic realities” factors are helpful guides in resolving whether a worker is truly in business for himself or herself, or like most, is economically dependent on an employer who can require (or allow) employees to work and who can prevent employees from working. The Supreme Court has indicated that there is no single rule or test for determining whether an individual is an employee or independent contractor for purposes of the FLSA. The Court has held that the totality of the working relationship is determinative, meaning that all facts relevant to the relationship between the worker and the employer must be considered.  The Courts have also held that just because an employee signs an independent contractor “agreement” does not mean that the employee is an independent contractor under the law.

If you believe that your employer has misclassified you as an independent contractor to avoid paying Pennsylvania Workers’ Compensation or Unemployment Compensation benefits you should speak to an experienced Pennsylvania employment lawyers.

Ira H. Weinstock, P.C. is located in Harrisburg, PA and serves clients in and around Southeast Pennsylvania. Contact our experienced Harrisburg attorneys today, we can travel if necessary.

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