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Labor Department issues new guidance on contractor classification

If your company works with independent contractors, you may be concerned about the recent litigation surrounding the issue. With the "gig economy" a growing factor in the American economy, workers have been asking courts to rule that they are legally employees rather than contractors.

Employees are entitled to many workplace-based benefits and protections such as the minimum wage, the overtime premium, workers' compensation, unemployment insurance, employer-paid payroll taxes and employer-sponsored benefits, among other things.

Federally, the question of whether workers are contractors or employees is determined for most purposes by the Fair Labor Standards Act (FLSA). The Department of Labor's Wage and Hour Division both interprets and enforces the FLSA, including setting standards for the proper classification of contractors.

Traditionally, the Division has advised courts to take a number of factors into account when reviewing contractor classifications. However, courts have considered one factor to be primary: the degree of control the employer exercises over the details of the work.

Last June, the Wage and Hour Division withdrew its 2015 administrative interpretation (AI) that departed from that standard, and the AI has only just been replaced by a field assistance bulletin (FAB) called "Determining Whether Nurse or Caregiver Registries Are Employers of the Caregiver."

Although the FAB focuses on nurses and caregivers, it reasserts the importance of the control question in contractor classification. It also provides a list of employer activities that could affect the question of control. Here are some examples:

Hiring and firing. Employers can conduct background checks, confirm credentials and perform other quality-control measures on contractors without affecting their classification. Using subjective criteria to determine if the worker is suitable for particular assignments implies an employee relationship.

Scheduling and work assignments. Controlling schedules or managing the work implies an employer relationship. In the context of a nurse registry, the employer can facilitate initial communication between a contractor and a client, but contractors must be in control of their own work.

Continuous pay for service arrangements. When an employer charges fees based on the total hours worked, the employer has an interest in having the worker work more hours. This could imply more control over the work and thus an employee relationship.

Providing equipment and supplies. Contractors generally provide their own equipment and supplies. If these are provided or if the company invests in the worker's training, professional licensing or insurance, this weighs on the side of an employee relationship.

If your organization employs contractors, you can't afford to have them challenge their employment classification. Work with an employment law attorney to evaluate each position for indications that you are exercising excessive control over their work.

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