In Part 2 of this six-part series, we go into further discussion on employee classification with regards to independent contractors vs employees.
We will start by covering the other two other tests which the NLRA uses to determine the employer-worker relationship: The Fair Labor Standards Act (FLSA) Economic Realities Test and the Discrimination Statutes Test.
The FLSA Economic Realities Test may apply only to workers designated as employees, not independent contractors. Thus, the proper classification of workers is critical to determine the application of these laws.
The employer-employee relationship under the FLSA is tested by economic reality rather than technical concepts. The test examines factors focused on the total activity or situation of the relationship.
An employee is one who is dependent upon the business to which the individual renders service
The amount of workers’ investment in facility and equipment
The nature of degree and control by the principal
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor
The degree of independent business, organization, and operation
There are certain factors which are immaterial according to the FLSA:
The place where the work is performed
The absence of a formal employment agreement
Whether the alleged independent contractor is licensed
Additionally, the Supreme Court has held that the time or mode of pay does not control the determination of employee status.
The Equal Employment Opportunity Commission (EEOC) Discrimination Statues Test is the most stringent of the three tests. It is often used in discrimination cases.
The question of whether an employer-employee relationship exists is fact-specific and depends on whether the employer controls the means and manner of the worker’s performance. The factors indicating that a worker is in an employment relationship include:
The employer has the right to control when, where, and how the worker performs the job.
The worker does not require a high level of skill and expertise.
The employer furnishes the tools, materials, and equipment.
The work is performed on the employer’s premises.
There is a continuing relationship between the worker and the employer.
The employer has the right to assign additional projects to the worker.
The employer sets the hours of work and the duration of the job.
The worker is paid by the hour, week, or month rather than the agreed cost of performing a particular job.
The worker does not hire or pay assistants.
The work performed by the worker is part of the regular business of the employer.
The worker is not engaged in a personally owned distinct occupation or business.
The employer provides the worker with benefits such as insurance, leave, or workers’ compensation.
The worker is considered an employee of the employer for tax purposes.
The employer can discharge the worker.
The worker and the employer believe that they are creating an employer-employee relationship.
This list is not exhaustive. Other factors may affect the determination of whether or not the employer-employee relationship exists. To be considered an employee, not all or even a majority of the items on the list need to be met. Rather, the determination must be based on all the circumstances in the relationship between the parties, regardless of whether the parties refer to it as an employee or an independent contractor relationship.
In Part 3, we will go into salary vs hourly choices.