Contractor Misclassification and an Unpaid Intern at Rivet & Co.
Rivet & Co. is an 11-employee marketing agency with $2.1 million in annual revenue. For 14 months, Jordan has handled social media for the agency's largest client under a signed independent-contractor agreement. Jordan is paid a flat $1,260 per week, works 45 hours per week in the agency's office Monday through Friday from 9 to 5, uses an agency laptop and the agency's project-management logins, attends the Monday staff meeting, and must get approval before publishing. Jordan has no other clients and invoices only Rivet. Separately, Maya, a college junior, has worked 20 unpaid hours per week for five months scheduling posts and drafting client copy in exchange for academic credit; her work appears in deliverables Rivet bills to clients. The founder wants to keep both arrangements as they are through the busy spring season and clean things up afterward.
1. Evaluate Jordan's classification using the standard behavioral, financial, and relationship factors. What is the likely determination, and why does the contract label not settle the question?
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Behavioral control. Rivet sets the schedule (9 to 5 in its office), requires attendance at staff meetings, provides the equipment and account access, and requires approval before publishing. That is instruction about when, where, and how the work is done - the hallmark of an employer-employee relationship.
Financial control. Jordan is paid a flat weekly amount regardless of output, has no other clients, has no investment in the business and no opportunity for profit or loss beyond the weekly rate, and does not market services to the public. A genuine contractor typically controls how many clients to serve and bears real economic risk.
Relationship. Fourteen months of continuous, full-time, on-site work for a single client, doing work that is central to Rivet's client deliverables, looks like an ongoing employment relationship rather than a project engagement.
Likely determination. On these facts, Jordan would most likely be classified as an employee under the multi-factor economic-realities analysis used by the U.S. Department of Labor, the common-law test used by the IRS, and most state tests. The signed agreement, the 1099 form, and the job title are not controlling; substance governs.
Why the label fails. Regulators look at actual behavior, and here every major factor points one way. The practical exposure includes unpaid overtime, the employer's share of payroll taxes, workers' compensation and unemployment insurance, potential liquidated damages and penalties, interest, and state-law differences. Continuing the arrangement because the spring is busy converts a fixable problem into a willful one, which is exactly the posture that increases penalties.
2. Quantify the overtime exposure for Jordan under the facts given, and identify the additional cost categories the owner should expect.
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Regular rate. A flat $1,260 for 45 hours is not automatically a salary. The regular rate is total pay divided by total hours: 1,260 ÷ 45 = $28.00 per hour. The straight-time compensation for all 45 hours has already been paid, so only the half-time premium is owed for the 5 hours above 40.
Weekly premium. 5 hours × ($28.00 ÷ 2) = $70.00 per week. Over the roughly 60 weeks in 14 months: 60 × $70 = $4,200 (61 weeks gives $4,270).
Additional categories. (1) Employer payroll taxes on the entire amount paid, not only the premium: about 60 × $1,260 = $75,600 of wages, with the employer's FICA share at roughly 7.65% = about $5,780, plus federal and state unemployment contributions. (2) Liquidated damages in an overtime case can equal the unpaid overtime, so budget a second $4,200. (3) Civil penalties, interest, and state penalties. (4) The cost of defending the position, converting the relationship, and providing benefits or workers' compensation going forward.
Documentation warning. If Rivet has no contemporaneous time records, it may not be able to rebut claims that Jordan worked more than 45 hours in some weeks. The employer generally bears that burden, which means the estimate above is a floor, not a ceiling. Recalling Jordan from contractor status prospectively does not erase the 14 months of exposure, and the fix should begin before the seasonal push, not after it.
3. Assess Maya's unpaid internship. What is the legal risk, and what remediation options does Rivet have?
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The test. For a for-profit employer, an unpaid intern is generally permissible only when the internship is primarily for the intern's benefit - closely tied to an academic program, comparable to training given in an educational setting, and not displacing paid employees, with no immediate operational advantage to the company from the intern's activities.
Applying it here. Maya drafts client copy and schedules posts that appear in deliverables Rivet bills for. That is productive work replacing what a paid coordinator would do, and the immediate benefit flows to Rivet. Twenty hours a week for five months is not job shadowing; it is an unpaid part-time job. The academic-credit label helps but does not control, particularly where the school's involvement is nominal and the work is operational.
Risk. Unpaid-wages claims for all hours worked (at least minimum wage), recordkeeping violations, and potential state penalties, plus a straight-forward reputational problem if a client or campus learns of it.
Remediation options. The cleanest fix is to convert Maya to a paid part-time employee at or above minimum wage and pay retroactively for hours already worked; that ends the exposure rather than extending it. Alternatives: restructure the engagement so she observes and shadows with no billable output, and verify that the college has a formal program with defined learning objectives and faculty oversight. Any version continued through the busy season should be documented before it starts. The general rule to state in the answer is that the business's benefit from the work, not the label on the arrangement, drives the outcome.