Drawing lines between who is an independent contractor and who is an employee has never been easy. In the current economy, where the number of freelancers and those working in the gig economy has exploded, the line between independent contractors and employees has become more blurred. Despite the fact that drawing these lines has never been easy, drawing the lines are extremely important. This post will first explain the important differences in workplace protections for independent contractors and employees. It will then address the tests used to determine whether a person is an independent contractor or an employee.

Why Does It Matter If I am an Employee or an Independent Contractor?

Whether a person is an employee or an independent contractor has consequences that touch on several state and federal laws protecting workers. Employees and independent contractors have very different protections. In fact, to state independent contractors have any protections at all is an overstatement.

Independent contractors are not protected by equal employment, harassment, discrimination, prompt wage payment, employee benefits, minimum wage, and overtime laws. Employees are protected under all of these state and federal laws. Independent contractors are also not protected by Nevada’s unemployment and workers compensation laws. If an independent contractor is harmed in the performance of their services, they may be left with no way to earn an income.

Employers are required to withhold federal income, Social Security, and Medicare taxes from employee paychecks. Employers are also required to pay portions of each employees’ Social Security and Medicare taxes. If a person is classified as an independent contractor, they are personally responsible for paying all of these taxes and withholding an appropriate amount for the payment of their income taxes.

You can likely pretty easily see now why employers want to classify or misclassify employees as independent contractors. The benefits to the employer in hard employment costs and in record keeping is very real. Misclassifying employees allows employers to place more money in their pocket at the expense of the worker and other employers.

Nevada Law

Nevada state law provides a definition and test for who is an independent contractor that is different from the traditional test used under the federal Fair Labor Standards Act (FLSA) and in federal courts. Nevada law provides a conclusive presumption that a person is an independent contractor and not an employee if the following are true:

(1) The person holds or has applied for an employer identification number (EIN) or social security number or has reported earnings from their self-employment with the IRS; and

(2) The person’s contract requires the person to hold all required state or local business licenses, and if necessary, any required state and local occupational licenses, insurances or bonds; and

(3) The person must meet 3 or more of the following 5 items:

– They control the means and manner in which their work is performed and the result of that work.

– They have control over the time in which their work is performed.

– They are not required to work exclusively for one principal or employer, unless otherwise required by law or by contract for only a limited period of time.

– They are permitted to hire employees to work for them in performance of their duties (i.e. it is not a personal services contract).

– They have made a substantial investment in their own business, which could include leasing or purchasing tools, licensing, and lease of work space. Whether or not the person’s investment is substantial is determined by the amount that person is paid for their services and whether the expenses they have incurred are common in their industry.

Nevada’s statute is available here: https://law.justia.com/codes/nevada/2017/chapter-608/statute-608.0155/ If the person does not meet the required elements above, it means they do not qualify for the conclusive presumption of being an independent contractor. This does not mean, however, that they are automatically an employee.

If the conclusive presumption is not met, Nevada courts will look at the factors above and several other factors that have been developed under existing case law to determine whether the worker is an employee or an independent contractor. The largest factor in that determination will be the amount of control the employer exerts over the worker. Under FLSA standards, a multi-factor test is used to determine whether a person is an employee or an independent contractor. Nevada courts will also probably review these factors in determining independent contractor status if the conclusive presumption of Nevada law is not met.

Federal Law

The federal Fair Labor Standards Act (FLSA) test for determining whether a person is an independent contractor or an employee is referred to as the “Economic Realities Test.” This test reviews the following seven factors:

1. The extent to which the services rendered are an integral part of the principal’s business.
2. The permanency of the relationship.
3. The amount of the alleged contractor’s investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The alleged contractor’s opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.

This information is pulled directly from the U.S. Department of Labor, Wage and Hour Division here: https://www.dol.gov/whd/regs/compliance/whdfs13.htm Some of these factors do overlap with the factors under Nevada law shown above, but there are some that are different or broader than Nevada law.

It is important to note that it does not matter what label a person is given whether that is employee or independent contractor. It also does not matter if the written contract between the employer and worker states the worker is an independent contractor. This fact alone does not determine the true nature of the relationship. Parties are not free to contract around employment protections with a stroke of a pen if they do not meet the applicable tests above depending on the applicable law.

I Think My Employer Misclassified Me as an Independent Contractor, What Should I Do?

If you believe your employer has improperly misclassified you as an independent contractor, you should contact an employment and labor lawyer. You could be missing out on several important protections at work, be underpaid, and losing important Social Security credits that you will need in retirement. You could also be in harm of becoming hurt at work and have no safety net to protect yourself when you cannot work. Only a Nevada licensed attorney can examine your potential claims and facts and determine whether or not you have any viable or strong claims.

Keep in mind that you are likely not the first or only person that your employer has misclassified. FLSA has a collective action provision that will allow you and co-workers to band together to bring claims against your employer.