Does Minimum Wage Apply to Contractors?
- Contractors are technically self-employed; they work for themselves, which is why they are usually called "independent" contractors. Their "bosses" are actually their clients, and they contract their services to those clients at their discretion. They can theoretically bill whatever they like, and many independent contractors are highly skilled workers who are able to charge a rate well in excess of the minimum wage.
- According to the U.S. Department of Labor and the laws of all 50 U.S. states, minimum wage laws only apply to "employees." There is no explicit legal provision that determines which workers are employees and which are not, and this has led to messy interpretations of court rulings and enforcement agency actions.
- Independent contractors are not employees, and in government laws they are usually singled out explicitly as being exempt from minimum wage laws. This is because of the nature of contractors, who are more like business partners than underlings. Since contractors do not work for their clients so much as work with them, they are not technically employees. Since they are not employees, they are not subject to the broad protections afforded to employees under the Fair Labor Standards Act and other federal and state laws regarding workers' rights.
- Some companies abuse the ambiguity of labor laws by classifying their workers as independent contractors when those workers should or plausibly could be classified as employees. This saves companies a lot of money, not just by avoiding paying workers a minimum wage but also by not having to pay payroll taxes, pensions, health benefits, workers' compensation and paid leave. More companies have classified their workers as independent contractors in recent decades, leading to many lawsuits over whether that classification is correct.