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With the rise of remote jobs and the increasing demand for flexible work schedules, non-traditional employment options, including independent contractors, seasonal employees, and freelancers, are on the rise. According to a study by the US Bureau of Labor Statistics, in 2023, over 7.4% of the American workforce identified as independent workers, with 11.9 million people claiming to work independently as their primary source of income. This is an increase from 6.9% in 2017. Small business owners and employers benefit from hiring independent workers, as businesses can scale with minimal costs and hire experts in specific business areas, such as marketing, construction, and logistics. Business owners must follow several federal and state regulations to ensure employers don’t take advantage of independent workers and that workers receive all the benefits and rights they’re entitled to. Below, our small business lawyer in Orlando shares what you need to know about classifying your employees correctly so your business can stay compliant with federal laws and regulations.

Employee and Independent Contractor Classification Guidelines

On March 11, 2024, the US Department of Labor released its final ruling on classifying workers as employees or independent contractors. The DOL’s final ruling highlights how misclassification of employees can harm workers, as they are denied rights to minimum wage, overtime pay, and benefits. The ruling aims to help reduce the misclassification of workers as independent contractors while preserving the rights and benefits of genuinely self-employed individuals. The guidelines for distinguishing employees and independent contractors are outlined below.

Employee—Identifying Factors

An employee is someone who performs services in the direct or indirect interest of an employer. The US Labor Code defines an employee as someone employed by an employer, with the definition of “employ” meaning someone hired to “suffer or permit to work.” Employees follow instructions from an employer about when, where, and how the work is performed while devoting the majority of their working time to that employer.

Employees are entitled to certain protections under the Fair Labor Standards Act (FLSA), such as federal minimum wage, overtime pay for hours worked above 40 hours a week, paid time off, regular break times, and accommodations for nursing mothers. These protections also apply to child labor laws, maintaining accurate records of employees, and prohibiting employers from retaliating against an employee for protected actions such as filing complaints.

Independent Contractor—Identifying Factors

There is no specific definition of an independent contractor according to the FLSA or Florida law. Instead, federal and state laws define employees and what employees aren’t. Courts have generally recognized that independent work goes beyond the FLSA’s understanding of employment, as the Act was passed in 1938. The DOL’s final ruling in 2024 aimed to help business owners understand how to classify workers appropriately. Independent contractors are not economically dependent on a single employer for work and operate their businesses independently. They can be referred to as self-employed, consultants, or freelancers.

Independent contractors are not entitled to company benefits, paid time off, or overtime pay. They also cannot file for unemployment from another business they work with.

Factors To Determine Classification

Whether a worker is an employee or an independent contractor is specified by six primary factors under the FLSA. These include workers’:

• Opportunity for profit or loss in the business.
• Investment in tools, skills, and equipment to complete the job.
• Nature and control over how the work is performed.
• Duration of the working relationship.
• Skill and initiative in completing the job.

Another consideration is whether the worker’s services are an integral and necessary part of the business.

These factors are determined by the economic reality of the working relationship. This means you can’t classify a worker as an independent contractor on paper but treat them like an employee in the daily working environment.

Penalties for Misclassification

Intentionally misclassifying workers is a felony and has serious consequences. If you intentionally misclassify a worker, you may be required to pay 3% of the employee’s eligible federal income tax, the entire employer’s share of FICA (and 40% of the employee’s share), and back-pay employment taxes. If the misclassification was unintentional and you issued the worker a 1099, the penalties are half this amount.

How to Classify Workers in Florida

Misclassifying employees comes with serious consequences, so working with a small business lawyer in Orlando is important to ensure your business stays compliant with federal regulations. Florida follows the same guidelines as FLSA. In addition, Florida Statute 440.02(18)(a) discusses worker classification. As with the FLSA, there isn’t a distinct definition of an independent contractor. Instead, the statute defines an employee as someone who receives payment from an employer for work or services while under an appointment, apprenticeship, or contract. The statute also states that an employee is not someone who:

• Maintains their own business
• Controls the methods and means to perform the work
• Incurs expenses related to performing or completing the work
• Receives compensation or commission on a per-job basis
• Suffers profit or loss in the business
• Independently completes the services as discussed

A person is an employee if the employer controls how, when, and where the work is performed and provides training or methods on how the work should be performed. Employees enter a continuous and ongoing relationship with a business, spending most of their working time engaged in tasks of one employer at a time.

Boutty Law Firm: Small Business Lawyer in Orlando, FL

The increase in alternative work arrangements allows small business owners flexibility to grow and scale their businesses by hiring the correct type of workers for the desired tasks. However, failing to classify your workers accurately can have serious consequences. That’s why working with an experienced small business lawyer in Orlando who understands how businesses can remain compliant is essential. We’ll help you develop employment contracts that accurately reflect your working relationships to reduce legal issues down the road. If a problem arises, we’ll provide legal services to help protect you and your business. Call us today at 407-622-1395 to discuss your business’ legal needs.