One of the most troubling questions facing employers today is this: is my worker an employee or an independent contractor? The answer to that question could have a significant impact on both the employer and the worker. If the worker is an employee, the employee is afforded various rights under both state and federal law, such as job security for leave due to medical reasons, minimum wage pay, overtime pay and unemployment compensation. If the worker is an independent contractor, however, those rights are not available.
How to answer the employee vs. independent contractor question is not as simple as one might think. Recently, the U.S. Department of Labor, Wage and Hour Division published an Administrator’s Interpretation on this exact subject. In that Interpretation, the Department lists several factors which are meant to be used as “tools” or guides to determine “…whether the worker is economically dependent on the employer or truly in business for himself or herself.” Administrator Interpretation pg. 5. The factors are: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skill and initiative; and (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. Administrator pg. 4.
One significant issue with respect to the Department’s Memorandum (and the court rulings on this matter) is that there is no set standard for answering the question. The Memorandum states, multiple times, that the above factors are not the only factors that can be considered. In fact, the Department suggests that even if one or more of these factors were not established, a worker could still be ruled as an employee. The classification can only be made after an ultimate analysis of all the facts and circumstances of the work relationship. As an example, a fact-finder may find that Factors 1 through 5 lean towards favoring an independent contractor designation yet decide that Factor 6 is so overwhelmingly employee-based that the worker will be classified as an employee. What is even more troubling is the fact that a fact-finder could quite possibly rule that all of the factors mentioned above tend to show the worker as an independent contractor yet some other factor in that particular case can lead to the designation of employee.
The bottom line is that the Administrator’s Interpretation did very little in the way of giving either employers or workers guidance on what work classification they fall into. As such, both employers and workers are still required to go through the process of challenging these designations either through the Department of labor or the Court system. If you think you have been misclassified by your employer, or if you think the Department of Labor is improperly classifying your independent contractors as employees, please call for a consultation.