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Employment Blog

Warning: Independent Contractors May Be Employees

Authored by Dean R. Dietrich
Posted on July 22, 2015
Filed under Employment

The Administrator of the US Department of Labor has issued guidance on determining whether an individual is an independent contractor or an employee of a company.  This Interpretive Guidance goes a long way to declaring that the Department of Labor will be aggressively reviewing determinations of independent contractor status by a company and will likely find that many independent contractors are really employees of the company.  Any company that uses independent contractors as part of their production workforce must be careful because of the aggressive stance being taken by the Department of Labor.

The new Administrator of the Department of Labor (David Weil) is an outspoken critic of independent contractor agreements and has published a 15-page interpretation guidance document describing the criteria that will be looked at by the Department of Labor when considering whether an individual is an independent contractor to the company or an employee of the company.  The Department of Labor will rely upon the “economic realities test” and look to see whether the individual is dependent upon the company for income instead of being dependent upon the individual’s business as the primary source of income.  The Department of Labor will look at the following factors when analyzing whether an individual is a true independent contractor:

  • The work performed is or is not an integral part of the employer’s business;
  • The worker’s managerial skills affect the opportunity for profit or loss by the individual;
  • The worker is hired on a permanent basis or an indefinite basis;
  • The worker’s investment to engage in work is relatively minor as compared to the employer’s investment in providing work for the individual;
  • The worker exercises business skills, judgment and initiative in the performance of work; and
  • The worker has meaningful control over various aspects of the work performed.

The Interpretive Guidance went into great detail about these six factors and suggests the employer must be aggressive in showing the individual is not reliant or dependent upon the company for satisfying the various elements of these factors.  Companies must be wary of the position of the Department of Labor when looking to determine whether or not a particular person is an employee of the company rather than an independent contractor performing work for the company.