This fact sheet provides
general information concerning the meaning of "employment
relationship" and the significance of that determination in
applying provisions of the FLSA and WHA.
Characteristics:
An employment relationship under the FLSA/WHA must
be distinguished from a strictly contractual one.
Such a relationship must exist for any provision
of the FLSA/WHA to apply to any person engaged in
work which may otherwise be subject to the FLSA/WHA.
In the application of the FLSA/WHA, an employee,
as distinguished from a person who is engaged in
a business of his or her own, is one who, as a matter
of economic reality, follows the usual path of an
employee and is dependent on the business which
he/she serves. The employer-employee relationship
under the FLSA is tested by "economic reality" rather
than "technical concepts." It is not determined
by the common law standards relating to master and
servant.
The U. S. Supreme
Court has on a number of occasions indicated that
there is no single rule or test for determining
whether an individual is an independent contractor
or an employee for purposes of the FLSA. The Court
has held that it is the total activity or situation
which controls. Among the factors which the Court
has considered significant are:
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.
There are certain
factors which are immaterial in determining whether
there is an employment relationship. Such
facts as the place where work is performed, the
absence of a formal employment agreement, or whether
an alleged independent contractor is licensed by
State/local government are not considered to have
a bearing on determinations as to whether there
is an employment relationship. Additionally, the
Supreme Court has held that the time or mode of
pay does not control the determination of employee
status.
Requirements:
When it has been determined
that an employer-employee relationship does exist,
and the employee is engaged in work that is subject
to the FLSA/WHA, it is required that the employee
be paid at least the minimum wage, which is currently
$7.25 an hour, and time and one-half his/her regular
rate of pay for all hours worked in excess of 40
per week. The Act also has child labor provisions
which regulate the employment of minors under the
age of eighteen (youth employment under the WHA),
as well as record keeping requirements. The
WHA also has wage payment provisions.
Typical Problems:
(1) One of the most
common problems is in the construction industry
where contractors hire so-called independent contractors,
who in reality should be considered employees because
they do not meet the tests for independence, as
stated above. (2) Franchise arrangements can
pose problems in this area as well. Depending
on the level of control the franchisor has over
the franchisee, employees of the latter may be considered
to be employed by the franchisor. (3) A situation
involving a person volunteering his or her services
for another may also result in an employment relationship.
For example, a person who is an employee cannot
"volunteer" his/her services to the employer to
perform the same type service performed as an employee.
Of course, individuals may volunteer or donate their
services to religious, public service, and non-profit
organizations, without contemplation of pay, and
not be considered employees of such organization.
(4) Trainees or students may also be employees,
depending on the circumstances of their activities
for the employer. (5) People who perform work
at their own home are often improperly considered
as independent contractors. The Act covers
such homeworkers as employees and they are entitled
to all benefits of the law.
*Note: This
fact sheet is also used by the North Carolina Department
of Labor, Wage and Hour Office, for the administration
and enforcement of the North Carolina Wage and Hour
Act.
North Carolina Department of Labor
Wage and Hour Bureau
1101 Mail
Service Center
Raleigh, NC 27699-1101
(919) 807-2796 or (toll-free NC only) 1-800-NC-LABOR
Web site: http://www.nclabor.com
