Employee Misclassification is Widespread and Costly
Employee misclassification occurs when employers wrongly classify workers as independent contractors, exempt employees, or other categories to avoid paying overtime, benefits, and employment taxes. This practice cheats workers out of billions of dollars in wages and protections each year.
⚠️ Important FLSA Update (2024)
On November 15, 2024, a federal court struck down the U.S. Department of Labor's 2024 rule that would have increased the salary threshold for exempt employees. The pre-2024 thresholds remain in effect:
- $684 per week ($35,568 annually) for executive, administrative, and professional (EAP) exemptions
- $107,432 annually for highly compensated employees (HCE)
If your employer classified you as exempt based on the 2024 increases, you may have been misclassified and are owed back wages.
Don't Be Fooled by Labels
What your employer calls you doesn't matter. Whether you're labeled as an "independent contractor," "exempt employee," "consultant," or "freelancer," your actual work relationship determines your legal rights. If you're really an employee, you're entitled to employee protections regardless of your job title.
Types of Employee Misclassification
Independent Contractor Misclassification
Employer treats you as a 1099 contractor when you're really an employee, avoiding overtime pay, benefits, and employment taxes.
Exempt Employee Misclassification
Employer classifies you as "exempt" from overtime when you don't meet the legal requirements for exemption under 29 C.F.R. Part 541, often with fake manager titles.
Volunteer or Intern Misclassification
Employer calls you a "volunteer" or "unpaid intern" when you're performing regular work that should be compensated under the FLSA.
Joint Employment Issues
Multiple companies share control over your work but each claims you're not their employee to avoid responsibility under federal and state employment laws.
Employee vs. Independent Contractor: The Economic Reality Test
Under the Fair Labor Standards Act and current Department of Labor regulations at 29 C.F.R. Part 795, courts use the "economic reality test" to determine whether you're really an employee or independent contractor. The key question is whether you are economically dependent on the employer for work.
The Six Economic Reality Factors (29 C.F.R. § 795.105)
Under current DOL standards, all factors are considered with no single factor being determinative:
- Opportunity for profit or loss: Whether you can earn profits or incur losses based on managerial skill, judgment, or initiative
- Investments by the worker and employer: Whether you make capital or entrepreneurial investments
- Degree of permanence of the work relationship: Whether the relationship is definite or indefinite in duration
- Nature and degree of control: Whether the employer controls the manner and means of work performance
- Extent to which the work performed is integral to the employer's business: Whether your work is critical, necessary, or central to the employer's business
- Skill and initiative: Whether you use specialized skills and business-like initiative
| Factor | Employee Indicators | Independent Contractor Indicators |
|---|---|---|
| Work Schedule | Employer sets hours and schedule | You control when you work |
| Work Location | Must work at employer's location | You choose where to work |
| How Work is Done | Employer controls methods and procedures | You decide how to complete tasks |
| Tools and Equipment | Employer provides tools and equipment | You provide your own tools |
| Training | Employer provides training | You have specialized skills |
| Other Clients | Work exclusively for one employer | Work for multiple clients |
| Payment Method | Regular salary or hourly wages | Payment per project or job |
| Business Expenses | Employer pays business expenses | You pay your own expenses |
Work Schedule
Work Location
How Work is Done
Tools and Equipment
Training
Other Clients
Payment Method
Business Expenses
Key Question: Economic Dependence
The ultimate question under the economic reality test is whether you are economically dependent on the employer for work (employee) or are in business for yourself (independent contractor). True independent contractors have significant freedom and economic independence in how they perform their work.
Exempt Employee Misclassification Under the FLSA
Under 29 U.S.C. § 213(a)(1) and 29 C.F.R. Part 541, certain employees are exempt from overtime requirements. However, exemptions are narrowly construed, and the burden of proving an exemption applies rests entirely on the employer.
Three-Part Test for White Collar Exemptions
To be exempt from overtime under the executive, administrative, or professional exemptions, you must meet ALL three requirements:
- Salary Level Test: You must be paid at least $684 per week ($35,568 annually) under 29 C.F.R. § 541.600
- Salary Basis Test: You must be paid on a salary basis as defined in 29 C.F.R. § 541.602
- Duties Test: Your primary duties must meet the specific requirements for executive, administrative, or professional work under 29 C.F.R. §§ 541.100, 541.200, or 541.300
Common Exempt Misclassification Warning Signs
- You're called a "manager" but don't actually supervise other employees
- You spend most of your time doing the same work as hourly employees
- You don't have authority to hire, fire, or discipline employees
- Your recommendations about other employees are not given particular weight
- You perform routine, clerical, or manual work rather than management duties
- You don't exercise discretion and independent judgment on matters of significance
- You earn less than $684 per week ($35,568 per year)