Does the Head of Household Exemption Apply to Independent Contractors?

Florida has a generous exemption from collections for the garnishment of wages. But this exemption may be limited for independent contractors. It’s something you should be aware of, whether you are someone who may need to collect a judgment from a debtor, or whether you could be a debtor yourself, owing a creditor money.

Head of Household

Florida law tries to avoid a situation where a wage earner for a household, who is supporting a family, can no longer support that family because of a judgment being entered against them. That’s the logic behind what is known as the Head of Household exemption.

As a general rule, any income up to $750 a week is exempt (protected) from being taken by creditors to satisfy a judgment. This exemption applies so long as the debtor provides more than half the financial support for the family. If the debtor earns more than $750 weekly, the amount up to $750 is still exempt—that is, only the amount that exceeds the $750 weekly can be taken by creditors to satisfy a judgment.

The amount earned (the wages, as defined in the statute) doesn’t necessarily have to be calculated on an hourly rate.

Independent Contractors

But courts have not been so willing to apply this exemption to independent contractors, who usually are self employed. That’s because of the inclination and ability of an independent contractor to manipulate his or her own pay. That kind of control, the logic goes, makes it too easy for a debtor to get an exemption that he or she wouldn’t otherwise receive.

The problem is that often, a worker may be mis-classified as an independent contractor by an employer, for a number of reasons (not all of which are legal or innocent). That means that courts had to start looking beyond classifications, to see if someone was an independent contractor.

Recent decisions have asked whether the worker has a job, or whether the worker runs their own business, which an independent contractor normally does. The court will look to hallmark factors that determine whether someone owns and runs a business.

IRS Independent Contractor Guidelines

The guidelines Florida courts use, largely mirror those used by the IRS. Courts will look to see if the worker gets some kind of regular, periodic compensation. If there is an employment contract the court will want to see that it is at arm’s length—that is, that the worker and employer are on opposite sides, with opposing interests from a contractual legal standpoint.

Courts have stated that even commissioned workers can get the exemption, as commission doesn’t necessarily equal being an independent contractor.

Even workers who have some ownership in the company can apply for and receive the exemption, so long as the services performed by the worker are different from the worker’s duties as a company owner.

Do you have a lawsuit where you’re looking to collect money or have to pay money? Call the West Palm Beach business litigation lawyers at Pike & Lustig for help and with any business law questions that you may have.

Resources:

leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/Sections/0222.11.html

irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee