Do Freelancers Get Overtime?
The freelance economy has exploded in recent years, with an estimated 64 million Americans performing freelance work in some capacity. From graphic designers and writers to software developers and consultants, freelancers value the flexibility and independence that comes with self-employment. But this independence comes with a significant trade-off: freelancers who are genuinely self-employed are generally not entitled to overtime pay under the Fair Labor Standards Act.
However, the line between "freelancer" and "employee" is not always as clear as it might seem. Millions of workers classified as independent contractors may actually be employees under federal and state labor laws — and if that is the case, they may be entitled to overtime pay, minimum wage protections, and other benefits they have been missing. Understanding when freelancers may be entitled to overtime requires a deeper look at how worker classification works and where the boundaries lie.
The FLSA and Independent Contractors
The FLSA's overtime protections apply to "employees," not independent contractors. An independent contractor is, by definition, someone who operates their own business and provides services to clients on their own terms. Genuine independent contractors set their own hours, use their own tools and equipment, work for multiple clients, and bear the financial risk of their business. Because they are not employees, they are not covered by the FLSA and have no legal right to overtime pay.
The Economic Reality Test
The Department of Labor uses the "economic reality test" to determine whether a worker is an employee or an independent contractor under the FLSA. This test examines multiple factors to assess the overall nature of the working relationship. No single factor is determinative — the analysis looks at the totality of the circumstances.
Key Factors in the Economic Reality Test
- Opportunity for profit or loss: Does the worker have the ability to earn more by exercising managerial skill, or do they face financial risk from their investment in tools, equipment, or marketing? True independent contractors have a real opportunity to profit or lose money based on their business decisions.
- Investment by the worker: Has the worker made significant capital investments in their business — such as purchasing equipment, renting office space, or hiring helpers? This suggests independent contractor status.
- Permanence of the relationship: Is the working relationship indefinite and continuous, resembling an employment arrangement? Or is it project-based and finite, as is typical for contractor engagements?
- Nature and degree of control: Does the company control how, when, and where the work is performed? If the worker sets their own schedule, chooses their own methods, and works without supervision, this suggests contractor status. If the company dictates these details, it suggests employment.
- Integral to the business: Is the work performed by the worker a core, integral part of the company's business? A software developer building a tech company's main product is more likely an employee than a plumber fixing the company's office bathroom.
- Skill and initiative: Does the worker use specialized skills in a way that demonstrates business-like initiative? Or do they depend on the company for training and direction?
Common Misclassification Scenarios
Worker misclassification is a pervasive problem across many industries. Companies may classify workers as independent contractors to avoid paying overtime, providing benefits, and covering employment taxes. Some common scenarios where freelancers may actually be misclassified employees include:
The Full-Time "Freelancer"
A worker who is labeled as a freelancer but works full-time for a single company, follows a set schedule, uses company equipment, and has no other clients is likely an employee in all but name. This arrangement is sometimes called "perma-lancing" and is particularly common in media, technology, and creative industries.
"If you work 40 or more hours per week for one company, use their equipment, follow their schedule, and have no other clients, you are probably an employee — regardless of what your contract says. And as an employee, you would be entitled to overtime for hours worked beyond 40."
Staffing Agency and Platform Workers
Workers placed by staffing agencies or engaged through digital platforms may be classified as independent contractors when they are actually functioning as employees. If the agency or platform controls the terms and conditions of the work — setting rates, assigning projects, requiring specific hours, or evaluating performance — the worker may be an employee of the agency or platform and entitled to overtime.
Gig Economy Workers
The classification of gig economy workers — drivers for ride-sharing companies, delivery couriers, taskers on home service platforms — remains one of the most contentious labor law issues of the modern era. While most gig platforms classify their workers as independent contractors, several legal challenges and legislative actions have pushed back on this classification. California's Assembly Bill 5 (AB 5), for example, codified the stricter "ABC test" for worker classification, making it more difficult for companies to classify workers as contractors.
State Laws on Worker Classification
Worker classification laws vary significantly by state, and some states provide stronger protections against misclassification than federal law. States with notable worker classification laws include:
- California: Uses the ABC test under AB 5, which presumes workers are employees unless the hiring entity proves all three parts of the test (the worker is free from control, performs work outside the usual course of the business, and has an independently established trade).
- New Jersey: Uses the ABC test for wage and hour purposes and has aggressively pursued misclassification cases.
- Massachusetts: Has one of the strictest independent contractor laws in the country, using its own version of the ABC test.
- New York: Has strengthened enforcement against misclassification and uses a multi-factor test that varies by the applicable law.
- Illinois: Enacted the Employee Classification Act specifically targeting misclassification in the construction industry.
What to Do If You Think You Are Misclassified
If you are classified as a freelancer or independent contractor but believe your working relationship resembles employment, there are several steps you can take. First, evaluate your situation against the economic reality test factors described above. Consider questions like: Do you work primarily for one company? Do they control your schedule and methods? Do you use their equipment? Do you have the ability to profit or lose money based on your own business decisions?
If the answers suggest you may be misclassified, you have several options:
- File a complaint with the DOL: The Department of Labor's Wage and Hour Division investigates misclassification complaints and can order back pay for overtime and minimum wage violations.
- File a state complaint: Your state labor agency may have additional protections and enforcement mechanisms for misclassified workers.
- Consult an employment attorney: An attorney can evaluate your specific situation and advise you on the best course of action. Many employment attorneys offer free initial consultations and handle misclassification cases on a contingency basis.
- File IRS Form SS-8: You can request a determination of worker status from the IRS, which can affect both your tax obligations and your employer's.
Protecting Yourself as a Genuine Freelancer
If you are genuinely self-employed and want to maintain your independent contractor status, there are best practices that reinforce your independent business identity. Work for multiple clients, maintain your own business entity (LLC, sole proprietorship), use your own equipment and tools, set your own rates and schedules, invoice for your work, and carry your own business insurance. These practices not only strengthen your independent contractor status but also help build a sustainable freelance business.
Conclusion
While genuine freelancers and independent contractors are not entitled to overtime under the FLSA, the reality is that millions of workers classified as freelancers may actually be employees who are being denied overtime and other protections. The distinction between employee and contractor is based on the actual working relationship, not the label a company assigns. If you suspect you may be misclassified, take the time to evaluate your situation and consider your options. Use our overtime calculator to see what you would be owed if your hours exceed 40 per week, and do not hesitate to seek professional advice if you believe your rights are being violated.