In an opinion letter recently issued by the Department of Labor, the Wage and Hour Division (WHD) answer an inquiry about whether workers providing services in a virtual marketing marketplace were employees of independent contractors. The analysis the WHD administrator went through is interesting to read. It is a somewhat different analysis the IRS goes through.
The WHD does an analysis that tries to determine the economic dependence on the employer or independence from the employer. They use six factors. These factors include:
(1) The nature and degree of the potential employer’s control;
(2) The permanency of the worker’s relationship with the potential employer;
(3) The amount of the worker’s investment in facilities, equipment, or helpers;
(4) The amount of skill, initiative, judgment, or foresight required for the worker’s services;
(5) The worker’s opportunities for profit or loss; and
(6) The extent of integration of the worker’s services into the potential employer’s business.
To understand how these are applied to an individual case you need to read the opinion letter.
For example, issue number one is the amount of control the employer exercise over the worker. If, according to the WHD:
A business may have control where it, for example, requires a worker to work exclusively for the business; disavow working for or interacting with competitors during the working relationship; work against the interests of a competitor; work inflexible shifts, achieve large quotas, or work long hours, so that it is impracticable to work elsewhere; or otherwise face restrictions on or sanctions for external economic conduct, among others.
In the aspect of control the worker is going to be deemed an employee and not an independent contractor.
The opinion letter continues with this type of analysis for all of these factors, and although, this opinion letter deals with just a particular company, this analysis is a lesson for us all in understanding the type of consideration the WHD might to in other cases. I encourage you to read it through.
Mistakes made on independent contractors can be very expensive. They generally affect more than just one employee and the fines, back pay, and taxes can be daunting.