Should Your Independent Contractor Instead Be Considered Your Employee?

The United States Department of Labor wants to clarify something it claims is costing employees certain protections and the government money.

consthelemetThe department recently put out an interpretation of sorts to ensure employees of companies don’t get misclassified as independent contractors (ICs), something it claims “is found in an increasing number of workplaces in the United States, in part reflecting larger restructuring of business organizations.”

When employers improperly list employees as ICs, “the employees may not receive important workplace protections such as minimum wage,” and others listed under the Fair Labor Standards Act (FLSA), the interpretation reads. “Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.”

Here are the six takeaways from the interpretation, which employers can use to determine if their hired help really is an independent contractor. This is what the department calls the “economic realities” test.

  1. The worker’s work is not an integral part of the employer’s business.
  2. The worker is in business for himself and uses managerial skills that expose them to profit or loss and development of future work.
  3. The worker’s relative investment in his or her business is comparable to that of the employer, demonstrating that the worker is exposed to a risk of loss.
  4. The worker’s business skills, judgment and initiative, not his or her technical skills, determine if the worker is economically independent, using his skills in an independent way, such as demonstrating business initiative.
  5. The worker serves many employers and isn’t relying on only one. If the latter is the case, the worker is an employee.
  6. An IC will control meaningful aspects of the work performed, with the oversight of the nature and degree of oversight of the employer “considered.”

In short, a worker is an employee if he or she is economically dependent on the employer. A worker is an independent contractor if he or she is in business for him or herself. If your “independent contractor” looks more like an employee, the department wants you to get with the program.

“Most workers are employees under the FLSA’s broad definitions,” the statement reads.

To read the department’s entire interpretation, click here.

Do you think employers misclassifying employees as ICs is common practice in our industry? Leave a comment below.

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