New U.S. Labor Department Rules Defining Independent Contractor

Confusion over the terms "employee" and "independent contractor" is a frequent topic of mine. That is because the definitions keep changing!  And they changed again--at least as far as the U.S. Department of Labor is concerned.

Under a proposed new rule by the DOL, how workers interact with employers is of paramount importance in making the determination whether to categorize a worker as an employee or independent contractor.

Instead of the traditional 6-factor test, the DOL is now proposing 5 factors to determine the extent of an employer's "control" over a worker. The more the employer "controls" the worker or her work, the greater the likelihood that the worker will be deemed an employee. These are the factors:

• The nature and degree of the worker's control over his or her own work
• The worker's opportunity for profit or loss from his or her own work

 

• The amount of skill required for the work
• The degree of permanence of the working relationship between employer and worker
• Whether the work is part of an integrated unit of production, that is, whether the work is a component of the employer's integrated process for producing a good or service

The first two factors are the core of the analysis. After analyzing the first two factors, if it is still unclear whether the worker is an employee, then we can look to the next three factors as additional guideposts.

The New York State Labor Department takes a seemingly more simplified approach by merely looking at whether the worker is free from any supervision, direction or control over the performance of his or her duties. But the analysis is deceptively simple because we are still left with the questions: what constitutes supervision, direction or control?

The Bottom Line: As much as the Labor Departments attempt to simplify the definitions, the analysis remains complicated. So, a word of caution: if you think your worker is an independent contractor, think again, seek advice, and confirm.