Employee Classifications

Employee/Contractor

Determining the classification of an employee is really a question of agency law. Is the person an agent or an employee (sometimes also called a servant)? The definition of an agent is one who, by mutual consent, undertakes to act on behalf of another subject to the principal’s control. Both an employee and an independent contractor are agents, but an employee is under much more control than an independent contractor, sometimes called a non-employee agent. Thus, the key question is whether the person or the employer controls the individual’s actions. For example, if a person is free to go to work when he chooses, and provides all of his own tools then it is likely that the individual is an independent contractor. However, if the individual is told when he/she shall start work and is provided the goods necessary to complete the work, it is likely that the individual is an employee. A simple question to differentiate the two important types of employees is whether the company is having a person from within do the work or hiring a person outside of the company to provide the work.

Exempt/Nonexempt

To determine whether a person is exempt or nonexempt the first mistake that is often made is looking at solely whether the person is a salary employee under the Fair Labor Standards Act (FLSA). However, the determination of whether a person is exempt is also a question of the services provided by the employee. To be an exempt employee, a person must be either an executive, professional employee, outside salesperson, or a certain computer employee that is paid an equivalent salary of at least $455 per week regardless of how much time is worked, and does not perform certain job tasks. To be a nonexempt employee for which the person is eligible for overtime pay at 1.5 times the normal hourly rate the individual must earn less than $455 per week and perform duties that are manual in nature, not directly related to management, does not require the exercise of regular judgment and discretion about matters of significance. As one can see, the Fair Labor Standards Act seeks to provide non-skilled works with a legal mechanism to protect them from overburdening labor.