The United States Department of
Labor Says that Most Independent Contractors Are Actually Employees
On July 15, 2015, the United States Department of Labor (DOL)
issued a 15-page memorandum, Administrator’s Interpretation
#2015-1, which includes new standards that significantly narrow
the ability for employers to classify individuals as “independent
contractors”. Under this interpretation most workers will
be classified as “employees” under the Fair Labor Standards
Act (FLSA). In the memorandum the DOL details an “Economic
Realities Test” that must be used to determine whether the
worker is economically dependent on the employer (and thus an employee)
or is really in business for himself (and thus is an independent
contractor). The subjective nature of the DOL’s interpretation
creates substantial challenges for companies who wish to maintain
their independent contractor relationships.
According to the DOL, for each independent contractor relationship,
employers should look at the following six factors.
1. The extent to which the work being
performed by the independent contractor is an integral part of
the employer’s business. If the worker is performing
the same work that the company is in the business of providing,
then the worker is probably an employee.
2. The worker’s opportunity for
profit or loss depending on his or her managerial skills. A
worker who has the opportunity to hire others or purchase equipment
and materials in order to increase his own profits is more likely
to be considered to be an independent contractor.
3. The extent of the relative investments
of the employer and the worker. Workers should make some “significant” investments
in their business in order to be considered an independent contractor
who is in business for themselves.
4. Whether the work to be performed requires
special skills and initiative. A worker’s business skills,
judgment and initiative, not his technical skills, will aid in
determining whether the worker is economically independent. Independent
contractors have the opportunity to make a profit or to incur a
5. The permanency of the relationship.
A long term relationship between the employer and the worker indicates
that the worker is an employee. Typically, an independent contractor
works one project for an employer and then moves on to another
contract for another employer.
6. The degree of control exercised by
the employer over the worker. Independent contractors must control
meaningful aspects of the work to be performed such that it is
possible to view the worker as a person who is conducting his own
The profile of a typical Independent Contractor would look something
He/she is in business for him/herself and has/does the following:
- Business Cards.
- Marketing materials.
- Web site/Facebook
- City/county business
- Membership in business/community
- Liability insurance.
- An established office
with needed materials.
- Works for a variety
of businesses and organizations.
- Submits contracts
for work to be accomplished.
- Is paid when the
contract is completed.
- Works at his desired
time and location using his own methods and materials.
- Has the very real
possibility of making a profit or incurring a loss.
short of this is an EMPLOYEE.
Paul Hilton Human Resources Consulting works with our clients to insure that all required documentation is correct and sufficient to successfully defend against a claim to any unemployment compensation commission.
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