I am often asked the question by clients, “Am I an employee or an independent contractor?” All too often, the answer to this question is that my client has been misclassified as an independent contractor. Companies often wrongly label their workers as independent contractors to avoid paying employment taxes and overtime pay. The Fair Labor Standards Act requires that employees (but not independent contractors) be paid one-and-a-half times their regular rate of pay for each hour worked over forty. Thus, the question that often arises is whether a worker is truly an employee or an independent contractor.
The mere fact that a company has labeled its workers as independent contractors or issued them a 1099 form is not sufficient to allow the company to refuse to pay the workers overtime. Nor is the fact that the company has made the worker sign a contract stating that he or she is an independent contractor. Rather, courts generally use what is called the “economic realities test” to determine whether a worker is an employee (and thus entitled to overtime pay) or an independent contractor (and thus exempt from paid overtime). The general elements under this test are (1) the extent of control exerted over the worker; (2) the extent of the relative investments between the worker and the company; (3) the degree to which the worker’s opportunity for profit and loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. The Department of Labor has stated that, as a general matter, if the worker is paid by the hour, this factor weighs in favor of a finding that the worker is an employee rather than an independent contractor. Denying workers overtime pay by misclassifying them as independent contractors is a serious violation of federal law, and can entitle the misclassified workers to thousands of dollars in unpaid overtime.
About the author: I am attorney Josh Borsellino. I understand Texas overtime laws, and I represent workers who have been wrongly labeled as independent contractors to get them the overtime pay they earned. If you have questions about Texas overtime laws, or whether you were misclassified as an independent contractor, call attorney Josh Borsellino at 817.908.9861 or 432.242.7118 or fill out this form for a free evaluation.