Identifying Your Employment Status

Am I An Employee?

At-will employment notwithstanding, employees enjoy a range of protections under federal and North Carolina law. The Fair Labor Standards Act and the North Carolina Wage and Hours Act require employers to pay at least minimum wage, pay overtime, and adhere to a number of other requirements regarding workplace conditions. The North Carolina Workers Compensation system provides for employees injured on the job.  And federal and state nondiscrimination laws protect employees from harassment or disparate treatment based on their race, sex, or gender.

But many of those laws only protect employees — not contractors, freelancers, or “gig workers.” Not long ago, “employee” included the vast majority of the workforce, and it was relatively easy to tell an employee from a contractor, freelancer, or other non-employee worker. But times are changing — and both workers and employers are finding new ways to structure work and pay arrangements. Even the simplest of new work trends, the rise of remote work, has muddied the waters; once, “work from home” almost always meant self-employed, but no longer.

To make matters even more confusing, it does not matter what you call yourself or what your employer calls you. If a court finds that your relationship with your employer looks like an employment relationship, you will be deemed an employee — even if both you and your employer agree that you are not. And that can have real impacts for both you and your employer in terms of your legal rights and obligations. 

Employee v. Contractor

Understanding The Difference

So, what makes an employee? The details of the definition may vary, depending on context, but some common factors thread through almost all contexts, from the Fair Labor Standards Act (from which North Carolina’s Wage and Hours Act takes its definition of employee) to tax laws. 

Generally, courts look at the “economic realities” of the relationship. In the words of the U.S. Court of Appeals for the Fourth Circuit (quoting another federal appeals court), “The focal point is whether the worker ‘is economically dependent on the business to which he renders service or is, as a matter of economic reality, in business for himself.’” That determination is made by examining the full context of the employment situation via six overarching factors:

  1.   The employer’s degree of control over the work process
  2.   The worker’s opportunity for profit or loss dependent on his managerial skill
  3.   The worker’s investment in his own equipment, materials, or other workers
  4.   The level of skill required by the work
  5.   The permanence or duration of the work relationship
  6.   The degree to which the work performed is integral to the employer’s business

Courts may also look at the degree to which the worker is engaged in an independent business; is allowed to make independent use of his skills, knowledge, and training in completing the work he is assigned; has full control over his own assistants, as well as the manner of completing the work; and is paid per piece of work or other logical unit or by time.

Although we’re not talking about taxes here, the IRS uses a similar framework in determining whether a worker is an employee or a contractor for tax purposes. For the IRS, “[t]he keys are to look at the entire relationship and consider the extent of the right to direct and control the worker.” Misclassifying workers — or allowing yourself to be misclassified as a worker — can have serious tax consequences.

A couple of examples may help clarify the distinction.

Joe works as a maintenance man for a group home. He is expected to be at work during specific hours and to use tools provided by the home, which also provided his training. He is paid by the hour on a regular schedule and does not work for anyone else on a regular basis. Joe is an employee.

Al is a salesman. He does not keep any fixed hours or fill any other roles in the company, and he controls his own approach to seeking and closing sales. He is paid a low, fixed amount each week, plus commission. While he currently works for just one company, he has in the past worked for two different companies at the same time. A North Carolina court has found a person in Al’s situation to be an independent contractor.

By contrast, Bob has worked only for one employer for most of his career. That employer provides him an office, as well as reimbursement for business-related expenses — as long as he gets large expenses approved in advance. Bob can hire an assistant, but only with the company’s approval, and the company pays that assistant. Bob also has other responsibilities within the company besides sales. A person like Bob, according to federal and North Carolina courts, is probably an employee.

The variations on these patterns are nearly infinite — is Joe still an employee if he supplies his own tools? Probably, but the answer will depend on how that shifts the other elements of the economic relationship between Joe and the home. Would Bob be a contractor if the company did not provide him an office or reimburse his expenses? Maybe, if that meant he also gained independence in the way he worked.

What Does the Contract Say?

Why You Should Read Carefully

Conventional employment and independent contracting each has its advantages. But it’s important that you know what kind of employment relationship you’re entering.

Courts won’t rely on a contract when reality points in a different direction, but you should start from the language of your employment agreement or contract. If the agreement mentions “at-will employment,” provides for fixed payment over a defined period of time, and generally provides for employer control over the when, where, and how of your work, you’re almost certainly an employee.

If, on the other hand, the agreement provides particular processes for terminating the relationship, offers payment by some logical unit other than time, and doesn’t seek to control the when, where, or how of the work, you’re probably a contractor.

Tax paperwork can also help sort things out: does your employer withhold taxes from every paycheck? Do you get a W2 (employee) or a 1099 (contractor) at the end of the year?

If the factors point in different directions, ask the employer what they think the relationship is. If it doesn’t make sense based on what you’re being asked to do, proceed with caution — as a contractor, you may not have the legal protections you can expect as an employee.

You Deserve To Know Your Legal Rights

Miller Law Group Is Here To Help

The difference between contracting and employment may not seem important when you’re starting an exciting new job. But beware — how the relationship is defined may determine what protections you have, for instance, if you’re injured in the workplace or have a wage dispute with your employer. If you need help to understand your status or to find out whether you qualify for workplace protection, you should consult an employment