By “reiterating 10 times that most individuals are employees,” the US Department of Labor signaled in new guidelines that it’s ready to crack down on employers who misclassify workers as independent contractors, said Bennett Pine, shareholder at Anderson Kill and chair of the law firm’s employment and labor group.
The Administrator’s Interpretation No. 2015-1 issued July 15 “puts clients on short notice that the DOL is really serious about attacking the issue of independent contractor misclassification,” Pine told Advisen. “If the employer is smart, they’ll be careful about labeling workers.”
The guidelines, while not binding, can be reviewed in court, where the burden of evaluating worker status has been shifted to the employer. By defining “employ” broadly and applying test factors besides the degree of control exercised by the employer, the guidance also sweeps in more workers under protections such as minimum wage, overtime compensation, unemployment insurance and workers compensation.
The “economic realities” test factors include how integral the work is to the employer’s business, the worker’s opportunity for profit or loss depending on their managerial skill and the extent of their investment relative to the employer.
The goal is “to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor),” the guidelines said.
“The guy who mows your lawn is an independent contractor,” Pine said. But just because an employer tells someone they are doesn’t make them one.
“It’s the duties, not the title” that define worker status, he said. “Employers have been playing fast and loose with the labeling.”
The Department of Labor said misclassification “results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers. Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.”
The number of those working independently has grown 14 percent to 10.6 million since 2001, according to Economic Modeling Specialists International.
Pine compared release of the long-awaited guidelines to activating a new stoplight at an intersection. “First they use the blinking yellow light, to get people used to it,” he said. And then it’s up.
