29 Jul Changes to Independent Contractor Classification
On July 15, 2015, the Department of Labor (DOL) issued guidance that defines “independent contractor” narrowly enough for many previously classified as independent contractors to now be classified as employees.
This narrowing of the definition of independent contractor is due partly to the DOL deemphasizing the degree to which a business controls an individual’s work, and focusing instead on the economic realities test, which looks at whether the worker is economically dependent on the employer or in business for him or herself.
In conducting an economic realities test, an employer should look to six factors, the DOL noted:
- 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 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.
No single factor is determinative creating an inherent subjectivity that creates uncertainty in classification.
Under the department’s analysis of the six factors, positions frequently considered as independent contractors—such as carpenters, construction workers, cable installers and electricians—are not necessarily independent contractors if they do not satisfy the factors.
Suppose, the department hypothesized, a highly skilled carpenter provides carpentry services for a construction firm. But the carpenter does not exercise his skills in an independent manner. He does not determine the sequence of work, order additional materials or think about bidding for the next job, but instead is told what work to perform where. “In this scenario, the carpenter, although highly skilled technically, is not demonstrating the skill and initiative of an independent contractor (such as managerial and business skills),” the DOL emphasized. “He is simply providing his skilled labor.”
By contrast, “a highly skilled carpenter who provides a specialized service for a variety of area construction companies (for example, custom, handcrafted cabinets that are made to order) may be demonstrating the skill and initiative of an independent contractor if the carpenter markets his services, determines when to order materials and the quantity of materials to order, and determines which orders to fill,” the DOL stated.