Labor – Overtime and Independent Contractors

Employers often hire workers and categorize them as independent contractors to avoid paying overtime, taxes, and complying with other federal and state labor and employment related laws. In overtime cases the courts and the administrative agencies do not automatically accept the idea that a worker is not entitled to overtime rights by simply categorizing the worker as an independent contractor. The workers are more often than not still employees and can file overtime claims.

The test to determine if a worker is an independent contractor is based primarily on the principal’s right to direct and control the manner and means by which the work is performed. It does not mean the employer has to exercise these rights. If the principal has the right to control then the worker will be an employee, even if the employer never actually exercises the control. When the principal does not have the right of direction and control over the worker, then the worker is independent contractor. The question in most cases is what does the right to control mean.

1. Do you instruct or supervise the worker while the worker is working ?

Independent contractors are free to jobs in any way they see fit. It is the end result that matters for independent contractors. If there are company procedures or if the worker is given specific instructions on how to do the work, then chances are that the worker is an employee.

2. Can you fire the worker at any time or can the worker quit at any time without notice ?

If you have the right to fire the worker without notice, it strongly shows that you have the right to control the worker. Independent contractors are hired for specific jobs and cannot be fired until the job is complete. Independent contractors are not free to quit with little or no notice.

3. Is the work performed part of your regular business?

Work which is a necessary part of the regular trade or business is normally done by employees and not something that would be subcontracted. Something that is done occasionally would be considered work done by independent contractor. Regularly answering the phone to take orders would not be done by an independent contractor.

4. Does the worker have a separately established business?

Independent contractors hold themselves out to the general public as available to perform services similar to those performed for the principal, this is evidence that the individuals are operating separately established businesses and would normally be

independent contractor. Independent contractors are also free to hire employees and assign the work to others in any way they choose and fire their employees fire their employees without your knowledge consent. Independent contractors normally advertise their services and seek new customers through the use of business cards.

5. Is the worker free to make business decisions which affect the worker’s ability to profit from the work?

An individual is normally an independent contractor when he or she is free to make business decisions which impact his or her ability to profit or suffer a loss. This involves real economic risk, not just the risk of not getting paid.

6. Does the individual have a substantial investment which would subject him or her to a financial risk of loss?

Independent contractors furnish the tools, equipment, and supplies needed to perform the work. Independent contractors normally have an investment in the items needed to complete their tasks.

7. Do you have employees who do the same type of work?

If the work being done is basically the same as work that is normally done by your employees, it indicates that the worker is an employee.

8. Do you furnish the tools, equipment, or supplies used to perform the work?

Independent business people furnish the tools, equipment, and supplies needed to perform the work.

9. Is the work considered unskilled or semi-skilled labor?

The courts and the California Unemployment Insurance Appeals Board have held unskilled or semi-skilled are the type of workers the law is meant to protect and are generally employees.

10. Do you provide training for the worker?

When training is required to do the task, it is an indication that the worker is an employee.

11. Is the worker paid a fixed salary, an hourly wage, or based on a piece rate basis?

Independent contractors agree to do a job and get paid for the job.

12. Did the worker previously perform the same or similar services for you as an employee?

If the worker previously performed the same or similar services as an employee, then the worker is probably still an employee.

13. Does the worker believe that he or she is an employee?

When both the principal and the worker believe they have and agreement where the worker is an independent contractor, an argument exists to support an independent contractor relationship between the parties.