Both North Carolina state law (the Wage and Hour Act) and federal law (the Fair Labor Standards Act) provide significantly more assistance to employees than to independent contractors. For example, an employee is entitled to minimum wage and overtime at a rate of one and a half times the employee’s regular rate. However, independent contractors are not entitled to wage and hour protection, including overtime. As you might expect then, employers want as many of their workers as possible to be given “1099” or “independent contractor” treatment. There’s some (minimal) benefits as well to employees in that taxes are not withheld (though you of course still have to pay them eventually.
Employers often ask employees to sign independent contractor agreements and then to work exclusively for them for forty hours per week. Here are some “factors” that have nothing to do with whether you should have overtime protection:
- You are not an independent contractor simply because you work offsite, from home, or have some flexibility over your hours.
- You are not an independent contractor simply because you are not paid through company payroll, i.e. through cash, check, or off the books.
- You are not an independent contractor simply because you signed an “Independent Contractor” agreement.
- You are not an independent contractor simply because you have a separate EIN number or because you formed a single member LLC.
- You are not an independent contractor because that’s how it works in your profession. “Industry standards” are not a reason or a basis for misclassification.
Okay, so what is the actual test? How can you actually know if you are an employee who is entitled to minimum wage and overtime assistance? Courts look at whether a worker is “economically dependent on the business to which he renders service or is, as a matter of economic reality, in business for himself.
They also look to the degree of control that the employer may have over the worker, the worker’s opportunities for profit or loss based upon their own work; the worker’s investment in the project; degree of skill; permanence of the relationship and the degree to which the services rendered are an integral part of the business.
North Carolina courts analyzing whether a worker is an independent contractor or an employee, have considered whether the individual “(a) is engaged in an independent business, calling, or occupation; (b) is to have the independent use of his special skill, knowledge, or training in the execution of the work; (c) is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis; (d) is not subject to discharge because he adopts one method of doing the work rather than another; (e) is not in the regular employ of the other contracting party; (f) is free to use such assistants as he may think proper; (g) has full control over such assistants; and (h) selects his own time.” These factors are to be considered but the presence of each one is not necessary.
In reality, unless you are truly in business for yourself or have complete control over how you go about doing your work, you are probably an employee.
If you have questions about your specific situation, you can reach us at firstname.lastname@example.org, visit our contact page or call at 919.526.0450. You can also subscribe to our wage and hour newsletter. We offer free consultations on unpaid wage claims for individuals or groups of employees and are happy to help.