Are My Company’s Workers In New York Employees Or Independent Contractors For Purposes Of Overtime Pay And The Minimum Wage?

Are My Company’s Workers In New York Employees Or Independent Contractors For Purposes Of Overtime Pay And The Minimum Wage?

The federal Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §§ 201-219 (the "FLSA"), and its implementing regulations, 29 C.F.R. § 510 et seq., mandate that most employees in the United States be paid at least the federal minimum wage of $7.25 per hour for all hours worked and overtime pay at 1½ times their regular rate of pay for all hours worked in excess of 40 hours in a workweek. 

So, too, the New York State Minimum Wage Act, N.Y. Labor Law § 650 et seq., and section 142 of Title 12 of the New York Code of Rules and Regulations mandate that employees in New York be paid at least the New York minimum wage of $7.25 per hour for all hours worked.  Covered employees who work overtime must be paid at a rate that is 1½ times their regular, "straight-time" hourly rate of pay.  12 N.Y.C.R.R. § 142-2.2. 

By contrast, neither federal law nor New York State law requires companies to pay, to independent contractors, either the minimum wage or overtime pay at one-and-one-half times the contractor's regular rate.  As a result, the standards used in determining, under New York law, whether an individual is engaged as an employee or as an independent contractor, are of great importance to businesses in the Empire State.  

The New York State Labor Law states that  the term " 'Employed' includes permitted or suffered to work."  N.Y. Labor Law § 2(7).  Similarly, the New York State Minimum Wage Act provides that the term " 'Employee" includes any individual employed or permitted to work by an employer in any occupation . . . ."  N.Y. State Labor Law § 651(5). 

To determine if an employment relationship exists in New York for purposes of overtime pay and the minimum wage, courts use the same test that is utilized under the FLSA.  This test is called the 'economic reality' test.  The purpose of this test is to determine "whether, as a matter of economic reality, the workers depend upon someone else's business for the opportunity to render service or are in business for themselves."  Brock v. Superior Care, Inc., 840 F.2d 1054, 1059 (2d Cir. 1988).  In the former circumstance, the workers are employees; in the latter circumstance, the workers are independent contractors.

In applying the economic reality test to ascertain whether an employment relationship exists in New York for overtime and minimum wage purposes, courts principally examine five factors:

  1. The degree of control exercised by the employer over the workers.  A high degree of control weighs in favor of finding the workers to be employees.
  2. The workers' opportunity for profit or loss and their investment in the business.  That the workers can lose money (because they purchase equipment or incur expenses for which the company does not reimburse them) militates in favor of finding the workers to be independent contractors.  Similarly, independent contractors are more likely than employees to invest significantly in equipment which they use in working for someone else.
  3. The degree of skill and independent initiative required to perform the work.  That the workers are skilled or exercise business-like initiative militates in favor of independent contractor status.
  4. The permanence or duration of the working relationship.  A long-term working relationship weighs in favor of employee status.
  5. The extent to which the work is an integral part of the employer's business.  That the worker's work is an integral or key part of the employer's business militates in favor of employee status.  For example, suppose an accounting firm retains a plumber to fix a leak in the firm's offices.  Plumbing is not an integral part of the employer's business, so the plumber is likely an independent contractor.

See generally Brock, 840 F.2d at 1058-1061.  It should be noted that, in New York State, the standards used in determining whether a person is an employee or an independent contractor for purposes of the minimum wage and overtime pay overlap with, but are not identical to, the standards used in determining whether an individual is an employee or an independent contractor for purposes of  New York State anti-discrimination laws, the New York State Workers' Compensation Law, or the New York State Unemployment Insurance Law, respectively.  As a result, that a company's worker in New York holds employee status or independent contractor status for purposes of the minimum wage and overtime pay does not necessarily mean that he or she holds the same status for purposes of State anti-discrimination laws, workers' compensation benefits, or unemployment insurance benefits.

Call the Law Offices of David S. Rich, LLC at (212) 209-3972 to speak with a knowledgeable labor and employment lawyer about making sure that your company complies with overtime pay and other wage and hour laws, or to retain a skilled overtime attorney to defend your company in unpaid overtime lawsuits or other wage and hour litigation.

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