Independent Contractor vs. Paid employee – Classifying the Houston Car Dealership Worker

Since many states’ Departments of Motor Vehicles (DMVs) have adopted strict rules regarding dealer’s licenses, it is clear that the Departments around the country are trying to do their part to prevent car salesmen misclassification as independent contractors.

In most states, including Texas, dealerships are not allowed to rent or sell their dealers’ licenses to another company or individual, which means that a dealership technically should not be allowed to let an independent contractor sell a car on the dealership’s behalf.

But surprisingly enough, some car dealership owners still try to misclassify their car salesmen and other workers, which not only violates the Fair Labor Standards Act in many cases, but also has the potential to take hundreds or even thousands of dollars out of paychecks each year through unpaid minimum wage and unpaid overtime.

Under the FLSA and guidelines set by the U.S. Department of Labor, if an employer takes the liberty to exert a certain amount of control over the employee, such as determining pay and hours, then that employee cannot be considered an independent contractor. He or she will then also be entitled to rights, such as a fair minimum wage and overtime pay, unless other factors allow the employer to deem the worker exempt, which is discussed in other blogs and articles on this website.

Aside from the DMV’s rules on dealers’ licensing, one of the best ways to determine if a car salesman is rightfully deemed an independent contractor is to dissect the relationship between the employer and “contractor” to see if it leans more toward employer/employee instead.

For example, if the car salesman is required to provide weekly or other regular sales reports to the employer, they cannot be considered independent. Likewise, if the employer supplies all of the necessary tools for the car salesman to do his or her job, such as a computer, paper, printer, fax machine, telephone, and email and internet capabilities, then an employer/employee relationship is also most likely established.

Another key determinate is whether or not the employer pays for or contributes to the cost of the salesman’s health insurance, 401(k), life or disability insurance, or pension plan.

Often times, it is easier to determine whether or not a Texas employee is correctly classified as an independent contractor by looking at the actions and behaviors of the employer and less at the employee.

For answers to your questions about misclassification of independent contractors in Houston, contact the experienced fair wage lawyers at Kennedy Hodges, LLP at 888.449.2068. They will provide you with a free copy of their book, The Ten Biggest Mistakes That Can Hurt Your Wage and Overtime Claim, as well as a complimentary case evaluation.