Many employers like to classify their workers as “independent contractors” instead of employees, so that those workers aren’t subject to wage and hour laws and aren’t entitled to other benefits like sick leave and vacation days that employees might be entitled to.
But before classifying any of your workers as contractors, you should talk to an employment lawyer. That’s because you could be misclassifying them. If that happens, you can end up being sued under the very same wage laws you were trying to avoid in the first place. If you lose in court, not only will you have to pay back pay plus interest, you’ll likely get stuck paying the workers’ attorney fees, and the court may assess you multiple times their damages just to teach you a lesson.
So how do you know if workers can really be considered independent contractors? If they have the right to control how they do their work and are free to accept or reject projects, are providing their own materials, are free to offer the same services to others and have a written contract, there’s a good chance they’re contractors. But if you’re exercising a significant amount of control over them, they’re very likely employees and are entitled to employee protections.
These lines can get blurred, and a court won’t necessarily interpret that situation in an employer’s favor. This happened recently in Kentucky. A security company hired off-duty police officers to provide private security and traffic-control services to clients. When a worker accepted an assignment, he or she was told where to report and given the details of the assignment. The company classified the workers as independent contractors, assuming it was in the clear since they worked part time, were free to decide which work they would take and worked exclusively at client sites.
But the workers sued, arguing that they’d been misclassified and should really be considered employees. They argued the employer had violated the federal Fair Labor Standards Act by failing to pay them overtime.
A federal appeals court agreed with the workers, focusing on the fact that the job required no specialized skill. and the workers didn’t invest in equipment or tools and worked hourly with no opportunity to increase their profits. This case shows that you can’t bank on workers being “contractors” just because they work remotely or on their own schedule. Talk to a lawyer first.