The Difference Between Independent Contractors and Employees - and why it matters.Feb 14, 2022
You may have heard that its important for businesses to properly classify workers as either employees or independent contractors, but do you know why?
Workers who are classified as employees fall under a federal law called the Fair Labor Standards Act (FLSA). Workers who are classified as Independent Contractors do Not. Therefore, as a business owner, it is important to know if you need to comply with the FLSA regarding the the person (or people) working for you.
Why Is This Important?
(1) Employees must be paid overtime for al hours worked over 40. If you classify a worker as an independent contractor and are not paying overtime, when he/she SHOULD be an employee, the company could owe the difference in back wages. The difference in pay times 5 employees for 2 years can definitely add up.
(2) Employees need to be paid an hourly rate + overtime (if working over 40 hours/week) unless they are exempt. If you are paying a salary, are you sure those employees fall within the exemptions? (HINT the Administrative exemption is the most litigated one because most companies get it wrong).
(3) If you pay your employee overtime, do you know the correct calculation of overtime rate? HINT: It’s not just ta function of heir hourly rate. It also includes bonuses and commissions.
If you have employees and are not sure if they are being paid properly, consult an employment attorney to conduct an audit so you can have the peace of mind to know your company is not unknowingly violating the law.
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