Department of Labor Lays Down Some Guidance on Independent Contractor Debate

pedicab driverIs that person who drops you and your friends off for a night in the town technically working for themselves, or Uber? What about the person who comes to clean your house with Homejoy? It is a roaring debate, and now the United States Labor Department has released their first guide on what, under the Fair Labor Standards Act, constitutes an employee.

The department acknowledged that the independent contractor vs. employee debate is a problem because more of these kinds of companies are popping up and workers suffer when they don’t get workers’ comp, unemployment, overtime or other benefits that employees enjoy. Businesses who do label workers as independent contractors don’t have all those expenses to pay and also pay lower taxes. The department sought to draw a little bit more of a defined line, but there will probably still be a big debate because each work situation is so unique and employers and workers alike will have to figure out how best to interpret the guidelines to their specific circumstances.

The questions that one must ask to determine whether a worker is an employee or an independent contractor are focused around “economic realities” which essentially ask, “Is the worker economically dependent on the employer to be paid (employee), or are they in business for themselves (independent contractor)”? Here are some of the questions the department released-

  • What is the extent of the investments of both employer and worker?

-If a worker puts in way more to support the business over and above what the employer has put in they lean towards the independent contractor label.

  • Is the work an integral part of the employer’s business? (If so, more likely that worker is employee. If a business hires a worker to put in new shelves in the storefront, for example, that worker might be considered more of an independent contractor.)
  • Is the worker’s opportunity for gains or losses dependent on their managerial skills?

-A worker who can decide how many hours to work and is responsible for getting their own clients and contracts is more on the independent contractor side of things because they are exhibiting managerial skills. Workers who get their assignments from someone else and work their hours, or available hours they volunteer for, look more like employees in the department’s eyes.

  • Does the work require special skills?

-If a job requires doing specialized services for an employer but the worker doesn’t have control over the materials used or how they can do the job they are more of an employer than someone doing specialized services who picks the jobs they want to do and in what way they are going to do them.

  • What is the “permanency” of the relationship?

-The more permanent your status is, the more likely your employee status is too.

  • How much control does the employer have over the worker?

-When an employer exercises control over workers that indicates they have employees. Things like schedules, uniforms, tasks to be done, etc.

Keep in mind that these criteria may be used on a case by case basis, it’s not like failing or passing any one test will automatically put the workers in question in one bucket or the other. They are not laws and courts do not have to abide by them. Courts may adopt them or some version of guidelines in the future, but for now they are still good guidelines to keep in mind if an employer is worried about how they should be labeling workers.

Some think that this guidance is too heavily tilted in favor of workers, and will hurt businesses. Some think that employers are taking advantage of the independent contractor label unfairly.

What's your take? Continue the discussion with others over at the WCInsights LinkedIn Group.
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