Contract employees must be paid for any unpaid overtime and work done, unlike independent contractors, because contract employees are W-2 employees. They just work on a contract basis.
Contract Employees and Independent Contractors Aren’t the Same
You may hear contract workers and independent contractors called “contractors” or think they are the same thing. It is important that you and your employer understand the difference.
Each type of employment is different, the laws that apply are very different, and getting them wrong will cost you money.
Basically, contract workers are W-2 employees that have an employment contract with a business.
Whether the contract is with a business or through an agency, contract workers have the same State and Federal employment rights and benefits provided to non-contract W-2 employee.
These Include Worker’s Compensation, Fair Labor Standards Act (FLSA) and other legal rights under state law and Federal protection.
Independent contractors receive 1099 tax forms and are not employees of any company.
They are truly “independent,” if classified correctly, and are not protected by many State and Federal laws.
No payroll taxes are paid for Medicare or Social Security and there is no Workers’ Comp or Unemployment protection.
What Is Overtime Pay?
The FLSA established rules on overtime pay to make sure employees are paid fairly for extra work.
Overtime pay rules state that nonexempt employees with over 40 hours worked in a workweek must be paid 1.5 times their regular pay for each additional hour.
Who are the Exempt Employees?
The FLSA does not apply to all employes. Certain employees can be exempt from overtime laws.
If the employee is paid on a salary basis, make at least $23,660 per year ($455 per week), and has certain job duties, they may be considered exempt.
The job duties must fall into one these classes:
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Executive
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Administrative
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Professional
Be aware that one of the biggest mistakes with job classes happens with job titles. You can’t give an employee a job title just to make them exempt.
So, calling someone a professional, or executive does not make them exempt. They must meet requirements defined by the FLSA and available from the U.S. Department of Labor.
What are the Duties of the Exempt Employees?
Executive
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Manage the business or a recognized department of the business
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Direct two or more full-time employees
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Have the authority to hire, fire, advance, promote, or change the status of other employees
Administrative
Primary duty must be directly related to the management or control of the business or general operations, and do not need to report to a supervisor:
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Finance
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Accounting
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Marketing
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Safety and health
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Human resources
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Public relations
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Government relations
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Computer network
Professional
To fall under the learned professional services and employee exemption, the contract employee must meet the following criteria:
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Primary duty required advanced knowledge in science or learning, such as, medicine, law, etc.
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Must be certified in their field.
Creative Professional Exemption
When primary duties requires invention, imagination, originality, or talent in an artistic or creative field to qualify.
Computer-Related Exemption
An exception to the salary rule for some “computer-related” contract professionals making at least $27.63 per hour or $455 per week.
These contractor employees can still be paid on an hourly basis and remain exempt from unpaid overtime.
The FLSA exemption is specific, as they must be a computer systems analyst, computer programmer, software engineer, or other similarly skilled position.
The primary job duty must be one or more of the following:
Apply systems analysis techniques and procedures.
Design, develop, document, analyze, create, test, or modify computer systems or programs related to user or system design specifications or machine operating systems.
Manufacturing or repair of computer hardware or other equipment is not included. Neither are workers that depend on computers for their jobs, like drafters or engineers.
Sales Exemption
Primary duty must be making sales and must regularly work away from the business location.
So is an Independent Contractor Entitle to Overtime Wages?
Yes, contract employees are entitled to overtime pay.
However, the FLSA is complex and have several factors to consider when dealing with an employer or many different companies. The information above is a brief explanation of overtime pay, exempt and nonexempt worker classification and the difference between contract employees and an independent contractor.
Whether you are a contract employee, independent contractor, or a W-2 employee and have any questions or concerns about your classification, job title, or unpaid wages, please contact us for a free strategy session.
