Labor Laws on Employees Vs. Subcontractors

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State and federal labor laws provide protections for employees in a variety of aspects, including wages, working hours and overtime pay. Contractors and subcontractors trade these protections for the freedom to negotiate contractual labor terms with a hiring contractor or client. This leads to increased liability while on the job, especially in circumstances involving an accident or injury.

Meal Breaks and Rest Periods

  • Employers must comply with federal regulations, state laws and company policies regarding break times and rest periods for employees. Employers must follow the law that is the most beneficial for employees. This means employers must provide appropriate meal breaks for employees if state law mandates it. Subcontractors do not receive protection under federal and state laws regarding break times and rest periods. Subcontractors may attempt to include a mandatory break time in a contract for employment, though the original contractor must agree to this provision.

Overtime Wages

  • Hourly employees and some salaried workers must receive overtime compensation under the Fair Labor Standards Act. The overtime rate is 150 percent of hourly pay for every hour over 40 worked in a standard week. Some states, including California and New York, require workers to receive this rate for more than eight to 12 hours worked in a single shift. Subcontractors do not receive overtime compensation under the FLSA. The hiring contractor is only required to pay the rate identified in the employment contract.

Worker's Compensation Rules

  • A subcontractor receives no protection under an employer's workers' compensation insurance plan. Workers' compensation only protects workers classified as employees when an injury occurs while on the job. A subcontractor injured on the job must pay for all his medical costs out-of-pocket or through a private insurance plan. An exception to this general rule occurs when a contractor or client is negligent in explaining safety issues at the job site. This may make the hiring contractor or client liable for the subcontractor's injuries.

Taxes and Withholdings

  • Federal and state laws require an employer to withhold wages from employee paychecks for the purpose of paying taxes. An employer must then pay these wages to the appropriate state or federal agency. A subcontractor receives the full sum of her wages from working, without the taxes taken out. It is the subcontractor's responsibility to make quarterly estimated tax payments to the IRS. Failure to pay taxes owed may result in an additional financial penalty at the end of the year, depending on how much money a subcontractor owes at the federal and state levels.

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