EMPLOYEE OR INDEPENDENT CONTRACTOR?

Construction workers

On July 8, 2015, the Seventh Circuit Court of Appeals held that drivers for FedEx “who drive a vehicle on a full-time basis” were considered “employees,” rather than “independent contractors,” as a matter of law.  What does that mean and why does it matter to Iowans?

In the FedEx case, the drivers were seeking to be classified as employees under Kansas’s Wage Payment Act so they could qualify for overtime pay and so that FedEx would be required to reimburse the drivers for work-related costs and expenses they spent on behalf of FedEx.  Overtime pay and reimbursement for business expenses are two great examples of why status as an “employee” versus an “independent contractor” might matter, but there are many others.

When Iowa courts are determining whether a person should be categorized as an employee or an independent contractor, the Iowa Supreme Court has noted that the “primary focus” is how much control the employer has “over the details of the alleged employee’s work.”  Iowa courts look at the intent of the parties and employ an eight-factor test to help determine whether someone is an employee or an independent contractor.  The factors are:

  • 1) Whether there is a contract to do a certain piece or kind of work at a fixed price;
  • 2) Whether the nature of the business or calling is independent and/or distinct;
  • 3) Whether assistants have been employed and, if so, who has the right to supervise them;
  • 4) Whether the individual is required to furnish their own tools, supplies, or materials;
  • 5) Whether the individual has a right to control the progress of the work (except the final result);
  • 6) The time for which the individual is employed;
  • 7) How the individual is paid, whether it’s by time or job; and
  • 8) Whether the work is part of the regular business of the employer

This distinction is important for many reasons.  There are specific differences for employees and independent contractors when it comes to how they are paid, such as the overtime pay and reimbursement at issue in the FedEx case.  Additionally, there are tax implications.  Among other things, employees have taxes withheld from their paychecks while independent contractors do not.

But perhaps more importantly, at least in the employment discrimination context, is that the state and federal anti-discrimination laws only apply to employers with a minimum number of employees.  Independent contractors do not count toward meeting this minimum threshold.  The state anti-discrimination laws apply to employers with at least 4 employees and the federal laws require at least 15 employees.  If you work for a small business, it’s especially crucial to understand whether there are enough employees for you to be protected by anti-discrimination laws in the workplace.

photo credit: <a href=”http://www.flickr.com/photos/30539067@N04/6053462016″>USACE quality assurance inspector talks with real estate specialist in Minot, N.D.</a> via <a href=”http://photopin.com”>photopin</a&gt; <a href=”https://creativecommons.org/licenses/by/2.0/”>(license)</a&gt;

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