Employee vs. Independent Contractor – Part 5
Are you entitled to minimum wage and overtime pay? That depends on whether you are an independent contractor or a W2 employee.
Did you receive a 1099? That is no guarantee you are an independent contractor. Here’s the fifth of six factors – of the “Economic Reality Test” – to help clarify where you stand… or sit.
Following along with us so far? The next factor that can weigh on whether you are an Independent Contractor or an Employee is how critical the work you perform is to the business. If you are performing critical work, that is necessary to keep the business going, you are considered an employee. So as an employee you are the key to making the car drive. An Independent Contractor performs work that supports the business, but if they weren’t around, the business would continue operating. Think of them like power steering. Your car will run without it, but it’s not very efficient.
Scenario A: People need to get paid! You are in charge of payroll, which is necessary to keep the business running. Without you, there would be anger and mass-exiting. You complete payroll bi-weekly, and are constantly managing your staff and communicating with your team’s accountant. Are you an employee or an independent contractor? You are an employee because processing payroll is critical for the business to continue running.
Scenario B: You are an accountant, and work very closely with the payroll departments of a few local business owners. You make sure the business does important things like pay taxes, and you may be the consultant about where their money goes. You may not get to decide how much in taxes are owed, but you do get to decide which business owners you’d like to work with. Employee or independent contractor? You are an independent contractor – the work you do is undoubtedly important, but it does not affect how the business runs day to day.
Resources:
https://www.dol.gov/agencies/whd/government-contracts/small-entity-compliance-guide
