Knowledgeable Legal Counsel

An independent contractor is not covered by the federal Fair Labor Standards Act (FLSA), which establishes minimum wage and overtime standards, enabling an employer to cheat the system, so to speak, by basing compensation on standards lower than the law requires for employees covered under the FLSA. The employer thus gains an advantage over their competitors because wages are lower.

The employee misclassified as an independent contractor may thus face lower compensation than he or she deserves. Independent contractors will also not be covered by workers' compensation or be able to receive any unemployment benefits if let go.

From an employee's standpoint, misclassification represents both a loss and an obligation: a loss because wages and benefits may be shorted, and an obligation because he or she then becomes responsible for any taxes owed and has no protection against injuries at work or job loss.

The state and federal governments also don't receive the taxes due to them for income, Medicare, Social Security, and the unemployment insurance (UI) fund when employees are misclassified.

If you hire a plumber who works on his own to come and fix a pipe at your business, that person is an independent contractor who sets his own rates for work done and then pays his own taxes and liabilities. If you, a business owner, hire someone to be an on-site plumber who takes care of issues at all the varied locations of your operations, and that person works only for you, that person is most likely an employee.

Here is how the Department of Labor separates the independent contractor from the employee:

Independent contractors run their own businesses. They are paid project by project. They provide their own tools and equipment for the task at hand. They work with multiple clients. They have only a temporary relationship with you until the work is completed. They decide when and how to do the work, and they decide if they even want to do the work.

Employees, on the other hand, are just about the opposite. For one, they work for someone else's business, usually on a full- or part-time basis. They are usually paid hourly, by salary, or by piece rate. They use the employer's tools, equipment, and materials. They typically work for one employer in an ongoing relationship. The employer decides when and how the work is to be accomplished. The employer assigns the work to be done.

In short, a major distinction between an employee and an independent contractor is how much control the other party exerts over you, your hours, and your work assignments.

Under the FLSA, states have the right to exceed but not undercut the standards set in federal legislation. You can often see this in state minimum wage requirements. The federal minimum hourly wage is still $7.25 an hour, where it's stood since 2009. In Ohio, the minimum wage for 2021 is $8.80 an hour.

A handful of states, not including Ohio, have opted to create strict tests or standards for judging when a worker is an employee or independent contractor. The federal standards, as detailed above, are pretty straightforward and clear enough, nonetheless.