The United States Department of Labor (DOL) has issued new guidance that narrows the definition of “independent contractor.” Under the new criteria, many workers who were previously classified as independent contractors would now be classified as employees.
Among other consequences, if considered an employee the worker will be entitled to minimum wage and overtime payments, and the employer will be required to withhold payroll taxes.
In determining the classification, the DOL had previously emphasized the extent to which an employer controlled the person’s work. The new guidance no longer places as much emphasis on the “control” factor, and instead uses an economic realities test which examines the extent to which a worker is economically dependent on the employer versus being in business for him or herself. The DOL notes six factors as part of the new test:
- The extent to which the work performed is an integral part of the employer’s business.
- The worker’s opportunity for profit or loss depending on his or her managerial skill.
- The extent of the relative investments of the employer and the worker.
- Whether the work performed requires special skills and initiative.
- The permanency of the relationship.
- The degree of control exercised or retained by the employer.
The guidance can be found here.
The DOL has determined that most work should be performed by employees, and independent contractors should be used less frequently. In light of this new guidance, employers should determine whether any workers they have classified as independent contractors should be reclassified as employees. The DOL has given notice that it increasingly will be scrutinizing these classifications.
