Employers love to use independent contractors, and for good reason! You get all the benefits of an employee without having to withhold taxes or offer benefits (in most cases). However, the US Department of Labor has found that too many firms are falling into the trap of misclassifying workers as ICs when they should actually be full-time employees and has thus issued a revised fact sheet on classification under the Fair Labor Standards Act (FLSA).
According to the revised Fact Sheet 13, there are two main situations with ICs that can put companies at risk. These are:
1.When a worker has signed an agreement stating that they are an IC: According to the fact sheet, the signed agreement given to the relationship doesn’t determine employment status. Instead, the reality of the working relationship does.
2.When a worker has incorporated a business or a worker has a license from a state of local government agency: According to the DOL, despite these items, these individuals can still be full-time employees depending on the tasks being performed.
Further, the DOL notes that the time and mode of pay don’t indicate what a worker’s status is. For example, the fact sheet suggests that if an individual is economically dependent on your firm, chances are the DOL considers him/her an employee. To determine whether your worker is an IC or a full-time employee ask yourself whether: we can require an individual to work? And can we prevent someone from working?
Still not sure? The DOL fact sheet includes six economic realties factors that the Supreme Court considered “significant” when determining whether an individual is economically dependent on an employer and include the following:
1.The extent to which the worker’s services are an integral part of the employer’s business (as in, does the worker play an integral role in the business by performing the primary type of work that the employer performs for his customers or clients or does the worker perform a discrete job that is one part of the business’ overall process of production?)
2.The permanency of the relationship (as in, how long has the worker worked for the same company?
3.The amount of the worker’s investment in facilities and equipment (does the worker bring his own equipment? Is he or she reimbursed for materials?)
4.The nature and degree of control by the principal (Who decides on what hours to be worked? Does the worker work for any other company(s)?)
5.The worker’s opportunities for profit and loss (Can the worker earn a profit by performing the job more efficiently or exercising managerial skill or suffer a loss of capital investment?)
6.The level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise.