Tests for determining independent contractor exemption
Before a company decides to classify a worker as an independent contractor on their payroll, they should consider these measures for determining the exemption status:
1. Independent contractors are exempt because they are not employees of a given company. If employers have control over contractors' work and oversee the manner in which the work is performed, the workers are most likely not exempt.
2. If workers have been performing work for a company over a significant amount of time or have a permanent relationship, they may not be exempt. The Department of Labor considers opportunities for advancement and incentives for long-term relationships as signals of employment.
3. Workers are more likely to qualify as independent contractors if they supply their own tools for job. When a company makes a significant investment in equipment, the relationship becomes more like that of an employer and employee.
4. Independent contractors also usually possess special skills for which they are hired to complete a specific job. If a contracted worker is tasked with generic job duties, they might not qualify under the exemption.
5. Workers who are completing tasks that are integral to the business are not likely to qualify as independent contractors.
6. Generally, an independent contractor should have opportunities for profit of loss, earning more for performing work faster or with extra skill. Additionally, they might stand to lose capital investment by performing the job they were hired for.
Misclassifying an employee under an exemption status they don't qualify for can be a costly mistake for employers. Businesses can avoid mistakes by recruiting help from a payroll service that is familiar with Fair Labor Standards Act (FLSA) provisions.
1. Independent contractors are exempt because they are not employees of a given company. If employers have control over contractors' work and oversee the manner in which the work is performed, the workers are most likely not exempt.
2. If workers have been performing work for a company over a significant amount of time or have a permanent relationship, they may not be exempt. The Department of Labor considers opportunities for advancement and incentives for long-term relationships as signals of employment.
3. Workers are more likely to qualify as independent contractors if they supply their own tools for job. When a company makes a significant investment in equipment, the relationship becomes more like that of an employer and employee.
4. Independent contractors also usually possess special skills for which they are hired to complete a specific job. If a contracted worker is tasked with generic job duties, they might not qualify under the exemption.
5. Workers who are completing tasks that are integral to the business are not likely to qualify as independent contractors.
6. Generally, an independent contractor should have opportunities for profit of loss, earning more for performing work faster or with extra skill. Additionally, they might stand to lose capital investment by performing the job they were hired for.
Misclassifying an employee under an exemption status they don't qualify for can be a costly mistake for employers. Businesses can avoid mistakes by recruiting help from a payroll service that is familiar with Fair Labor Standards Act (FLSA) provisions.
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