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DOL issues new guidance on classifying independent contractors

With the rise of the "gig economy," new companies have sometimes opted to classify their workers as independent contractors vs. employees. This immediately cuts their overhead, as contractors are not eligible for overtime or many job-based benefits like workers' compensation and unemployment insurance. They are responsible for paying 100 percent of their payroll taxes, while employees receive half paid by their employer. Hiring independent contractors can save a lot of money for the company by shifting the cost of even basic benefits to the worker.

The question of whether a worker is a contractor, however, is a legal one. Companies are not free to simply label their workers as contractors. Instead, they must demonstrate that the employer-independent contractor relationship is legitimate.

To do that, courts have traditionally weighed a number of different factors and considered the totality of the circumstances. The primary factor, however, is how much control over the details of the work is exercised by the company. The less control a company exercises, the more likely the worker is to be considered an independent contractor.

The U.S. Department of Labor Wage and Hour Division is the federal agency tasked with ensuring proper worker classification, among other things. It recently released a field assistance bulletin (FAB) called "Determining Whether Nurse or Caregiver Registries Are Employers of the Caregiver." Although technically limited to the field of home nursing care, it gives some useful insight into the proper classification of other types of contractors.

The FAB states that nurse registries can enter into legitimate independent contractor relationships as long as they avoid exercising too much control over the details of the caregivers' work. Some examples of activities that might weigh on the side of an employer-employee relationship include:

  • Using subjective criteria to determine the suitability of a particular worker
  • Becoming actively involved in a client's decision to fire a caregiver
  • After the initial appointment, managing the worker's schedule
  • Providing instruction or training
  • Evaluating the worker's performance
  • Setting pay rates, as opposed to advising on market rates
  • Tracking the worker's time beyond what is necessary to process payroll
  • Providing equipment or supplies

In other words, the FAB essentially indicates that an independent contractor relationship can be legally maintained as long as the company is careful to give most of the decision-making authority to the worker.

Whether you work in healthcare or not, you deserve to be properly classified. Improper classification as an independent contractor or as an exempt worker under the FLSA can cost you money. If you are concerned that you may be misclassified, discuss your situation with an experienced employment law attorney.

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