As companies look to free themselves of the administrative and financial headaches of employing workers, a growing number are turning to freelancers or independent contractors who usually get paid by the hour without benefits and worker protections.
But be careful: Employers often unknowingly break the law—and can land themselves in legal trouble.
A federal judge ruled earlier this week that Rick’s Cabaret, a Manhattan strip club, has to pay its dancers minimum wage and treat them as employees. The club had long classified its dancers as independent contractors and were only paid in customer tips, thus skirting minimum wage rules. This week’s ruling means that 1,900 of Rick’s Caberet International current and former dancers can seek back wages, according to NBCNews.com.
But Rick’s is by no means the first time a company has landed in court over such an issue. In 2010, a U.S. district court judge ruled that FedEx drivers are independent contractors after some drivers claimed they were treated like employees and should be given full benefits, according to Bloomberg.com.
Federal officials have recently expressed an interest in ensuring businesses aren’t breaking labor laws when it comes to paying workers minimum wage and overtime. Newly confirmed U.S. Labor Secretary Thomas Perez has said in recent interviews that cracking down on the misuse of independent contractors is among his top priorities.
Problems often stem because companies don’t understand that they can’t just call someone a contractor—they have to follow a set of rules laid out by the Department of Labor's Fair Labor Standards Act. Common red flags include companies that exert too much control over how their freelancers or independent contractors perform their work (essentially treating them like full-fledged employees) or misrepresenting them to customers and clients as employees.
Legal web site Nolo.com provides tips for business owners on how to differentiate between independent contractors and employees so they’re not breaking the law.
Read more on labor laws.
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