Employers have long grappled with the delicate balancing act of employee and independent contractor classifications, and recent high-profile court cases served to renew focus on the matter. On Wednesday, July 15, the U.S. Department of Labor (DOL) joined the discussion with the issuance of what it calls a “litmus test” for employers to use in the classification process.
The guidelines seek to clarify, not change, existing law under the Fair Labor Standards Act, and specifically expand upon the “economic realities” test employers are to use when classifying a worker as an independent contractor. Under this test, factors such as the employer’s degree of control over the worker and work product, the permanence of the work relationship, and the level of skill required of the worker are to be considered as a whole.
While greater clarity has long been desired by employers who struggle with classification questions, the guidelines may not be welcome relief. The guidelines place greater weight on employee classification and make the bona fide classification of an independent contractor more unlikely. This expansion of the definition of an employee is not surprising given the DOL’s aggressive approach that employee misclassification deprives workers of important benefits such as overtime pay and workers’ compensation. The new guidelines all but guarantee the critical oversight will continue, particularly in industries that rely heavily on independent contractor relationships.
Independent contractors can continue to be a worthwhile solution for many businesses. However, in light of the guidelines, employers will be wise to revisit independent contractor classifications and confirm that the relationships pass muster under the refined “economic realities” test.