Misclassifying workers as independent contractors can lead to wage claims, tax issues, and government audits. Before treating a worker as a contractor, employers should run through this quick compliance check. Misclassification may result in legal liability under the Fair Labor Standards Act (FLSA), financial penalties, and reputational damages.
1. Who Controls How the Work Is Done?
A key factor under the FLSA is control.
- •Do you dictate the worker’s schedule, and the days and hours that they work?
- •Do you supervise how the work is performed?
- •Do you require detailed instructions?
If the company controls how the work is done, the worker may legally be an employee.
2. Does the Worker Operate an Independent Business?
Independent contractors typically:
- •Work for multiple clients
- •Advertise their services
- •Maintain their own business entity
- •Carry their own insurance
If the worker primarily works only for your company, misclassification risk increases.
3. Who Provides the Tools and Equipment?
True contractors usually supply their own:
- •Equipment
- •Software
- •Tools
- •Workspace
If the company provides all tools and equipment, regulators may view the worker as an employee.
4. Is the Work Core to Your Business?
If the worker performs duties central to the company’s primary business, courts may view the worker as economically dependent on the employer.
Example:
- •A marketing firm hiring freelance designers (lower risk)
- •A delivery company classifying drivers as contractors (higher risk)
Misclassification disputes have been a major focus for enforcement by the U.S. Department of Labor.
5. Do You Have a Written Independent Contractor Agreement?
While not determinative, a written agreement should clearly address:
- •Scope of services
- •Payment structure (project-based vs hourly)
- •Contractor responsibility for taxes
- •Lack of employee benefits
However, a contract alone will not fix a misclassification problem if the working relationship looks like employment in practice.
Quick Tip for Employers: Conduct a periodic classification audit, especially for subcontractors and workers in marketing, IT, sales, and consulting roles where contractor relationships are common.
Sarah Bachich and Bruce Loren of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Mrs. Bachich focuses her practice in employment law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. Mr. Loren and Mrs. Bachich can be reached at bloren@lorenkeanlaw.com or sbachich@lorenkeanlaw.com or 561-615-5701.
