Put this in the category of – “What’s in a name?” Or “A rose by any other name would smell as sweet.” An issue which arises often in the employment area is the significance of a title given to an employee or to a job. The question arises when an employer enters into a contract with someone characterized as an “independent contractor,” or the employer gives a job/position a title such as “salaried administrative.” Simply put, you cannot change the nature of an employment relationship by naming a position or entering into a contract.
For example, employers often draft written agreements which they call “Independent Contractor Agreements” and then engage someone to fill a staff or professional position in their office. Many times we see these agreements with people who are essentially doing the same type of work or providing the same professional service as others who are employees with the employer. The “independent contractor” is provided with an office and equipment and is expected to work during the same hours as others in the office. Typically, in these arrangements, the only difference between the “independent contractor” and employees in the office is the method of payment to the “independent contractor,” who does not receive a salary with withholdings but instead is paid an agreed upon gross amount without withholdings. Also, the “independent contractor” is not included in benefits provided to employees. It is important to recognize that in many such cases, the “independent contractor” is in reality an employee. If a challenge is later made by the “independent contractor” on grounds that he/she did not receive benefits or was not paid overtime, or on some other basis, a court will look at all of the factors set forth in various IRS and wage and hour regulations, and will determine that “the rose” by the name of “independent contractor” was actually an “employee” who was entitled to the benefits of an employee and for whom withholdings should have been made.
This same scenario arises in situations in which a job/position is characterized as falling into one of the three overtime exempt job categories under the Fair Labor Standards Act (“FLSA”), but the job does not meet the requirements and tests of the FLSA. In this situation, the employee filling the job will be entitled to overtime pay based on the facts, despite the title given to the position.
This is a cautionary message which is frequently ignored or misunderstood until an inquiry comes from either a state or federal agency regarding a particular employee or when an on sight investigation is done by one of the various state or federal agencies which administer wage and employment issues in the work place. It is best to consider carefully the proper classification of a specific position or of an “independent contractor” based on the facts involved before going down the road of treating someone as falling into an improper category. These decisions are very fact specific and a mistake can lead to penalties and lawsuits.