Contractors or Employees?

The Department of Labor has issued a final rule on distinguishing between a contractor and an employee. “The misclassification of employees as independent contractors may deny workers minimum wage, overtime pay, and other protections,” they point out. “This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.”

When you have employees, you must pay minimum wage, plus overtime if they work more than 40 hours a week. You have to keep certain records, too. For nearly a century the distinction between employees and contractors has been based on one question: is that workers in business for him or herself, or do they rely on you for work?

In 2021, the DOL identified five specific factors to consider:

  1. How much control do they have over their work? If you set the working hours and require them to be at your place of business during those hours, they’re probably an employee.
  2. Is there an opportunity for profit or loss? A self-employed individual will have this opportunity, while an employee will not.
  3. How much skill is required?
  4. How permanent is the relationship?
  5. Is their work part of an integrated unit?

The newest rule adds the question of investment on the part of the worker, and changes #5 to a question about whether the work is integral to the employer’s business. ┬áThe new rule includes these six factors, but is more holistic — the most important question is, as it was before 2021, simply whether the worker is in business for him or herself or not.

Any objections?

Truckers are protesting. Many truck drivers choose to work as independent contractors. They seem to think that the new rule may disqualify them.

Contractors object, too. They say that the new rule is ambiguous and that “employers and workers alike will not understand who qualifies as independent contractors.”

The Chamber of Commerce took their objections a step further. “The implicit premise of the Proposed Rule is that legitimate independent contracting is a poor substitute for being an employee,” they wrote.

This seems to be the primary objection: the DOL appears to suspect that employers are trying to classify employees as contractors simply to save money on labor costs. If your workers are contractors, you don’t have to guarantee minimum wage or overtime, so companies can save on labor if they misclassify workers as part of the gig economy when they should really be considered employees.

Reuters said, “The U.S. Department of Labor on Tuesday issued a final rule that will force companies to treat some workers as employees rather than less expensive independent contractors, in a move that has riled business groups and will likely prompt legal challenges. The rule is widely expected to increase labor costs for businesses in industries that rely on contract labor or freelancers, such as trucking, manufacturing, healthcare and app-based ‘gig’ services.”

Will it affect your company?

Companies like Uber, Lyft, and DoorDash have already released statements saying the they don’t expect the law to change their business models. If these companies, which rely entirely on gig workers, feel confident about their classifications, your company is probably okay. Just make sure that you distinguish between the employees and the contractors clearly