On July 15, 2015 the Department of Labor (DOL) issued new guidance and says that “most workers are employees” under the FLSA. This guidance draws an “economic realities” test to determine whether or not workers are economically dependent on the employer. Giving a 1099 form to a person does not make it an independent contractor! What are the differences between contractors and employees? Let’s do the basic analysis!
Contractors are free to do jobs in their own way, using specific methods they choose; with employees you have the right to direct and control the manner and means by which the work is performed. Contractors do specific jobs and cannot be fired before the job is complete unless they violate the terms of the contract. They are not free to quit and walk away until the job is complete; with employees you instruct/supervise the person while he or she is working
Contractors perform a service on a one-time or occasional basis that is not an essential part of the purpose of the business enterprise; with employees you can fire them or the employee can quit at any time. Contractors are free to hire employees and assign the work to others in any way they choose; with employees the work being performed as part of your regular business.
Contractors furnish the tools, equipment, and supplies needed to perform the work; with employees you furnish the tools, equipment, or supplies used to perform the work. Contractors have “managerial skill” that can affect profit or loss, and they typically make investments that support their business. Is the relationship between the worker and the employer permanent or indefinite? If either or both it’s an employee!
Just in Fiscal Year 2014, the Wage and Hour Division (WHD) investigations resulted in more than $79 million in back wages for more than 109,000 workers in industries such as the janitorial, temporary help, food service, day care, hospitality and garment industries. The line between an employee and an independent contractor is not clear; so, small business owners beware!