Labor Department issues outlines on use of independent contractors

The U.S. Department of Labor recently clarified how employers using independent contractors should classify them.

In the new guidance released July 15, Department Administrator David Weil lamented what he said was a “problematic trend” of deliberate misclassification, and said he considers the guidance part of a “multipronged approach” to combat the phenomenon.

Weil’s interpretation asserts an admittedly “expansive” definition of employment under the Fair Labor Standards Act, noting that its “economic realities test” is far broader in scope than the common law control test used by the IRS. And while the six-part test is meant to establish the economic dependency of a worker, Weil makes clear that no single factor is determinative, no part should be given undue weight, and that its application should entail qualitative analysis rather than a quantitative checklist.

Notably, Weil asserts that any agreement relating to independent contractor designation, however mutual, “is not relevant to the worker’s status.”

"If the worker is economically dependent on the employer, then the worker is an employee," he said. "If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.”

But while this guidance stops short of a formal rule, it signals an emerging hostility toward the independent contractor model and an aggressive new posture towards enforcement of the existing rules. Contractors are encouraged to review the interpretation, its prescribed tests and their associated examples, several of which involve the construction industry.

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