Independent contractor or employee? You better be sure.
Recently, an appellate court in Pennsylvania affirmed a $4.5 multimillion-dollar verdict for employees due to misclassification as independent contractors.
Many employers don’t realize how serious a misclassification mistake can be, or how costly. There is in fact, a long-standing test to determine whether a worker is an employee or independent contractor under the Fair Labor and Standards Act.
Courts consider the following 6 factors: (1) the degree of control exercised by the company on the individual; (2) the individual’s opportunity for profit and loss; (3) the individual’s investment in equipment or personnel; (4) the skill required to perform the work; (5) the duration of the relationship between the company and the individual; and (6) whether the services performed by the individual are integral to the company’s business. Even with these factors, there is no exact formula. Courts review each circumstance on a case by case basis.
There are many successful independent contract relationships, however businesses should take great caution to conduct a thorough audit of each of the factors listed above to properly classify a worker as employee or independent contractor.