The DOL is spending its summer break contemplating independent contractor status
At a labor and employment law conference held at the New York University School of Law last week, David Weil, the head of the DOL’s Wage and Hour Division (WHD), said that he would be putting out an “administrator interpretation” shortly that aims to clarify who legitimately qualifies as an independent contractor. Weil said that the guidance will rely upon factors historically used by courts to evaluate an employment relationship, such as economic realities and the exercise of control, and will emphasize that the analysis is not a “mechanical process, but it’s a holistic process of assessment.”
The misclassification of workers as independent contractors has been a top priority for the DOL in recent years. Why? According to the DOL, misclassification is a “serious problem” not only for workers but the overall economy. Misclassified workers may be denied access to benefits and protections – such as family and medical leave, overtime, minimum wage, and unemployment insurance – to which they would otherwise be entitled. Also, according to the DOL, misclassification generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers’ compensation funds, because employers are not paying the proper FICA and unemployment insurance taxes or workers’ compensation premiums.
In September 2011, former Secretary of Labor Hilda L. Solis announced a major step forward with the signing of a Memorandum of Understanding (MOU) between the DOL and the Internal Revenue Service. Under this agreement, the agencies are to work together and share information to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws. Additionally, labor commissioners and other agency leaders representing 22 states have signed MOUs with the DOL’s WHD with the goal of protecting the rights of employees by preventing their misclassification as independent contractors, with Rhode Island being the most recent state to partner with the DOL in May 2015.
While the DOL has promulgated fact sheets and other information for employers regarding classification of independent contractors in the past, this will be the first administrator interpretation on this complex issue. The DOL abandoned its use of opinion letters tailored to specific wage and hour compliance queries and began issuing administrator interpretations in 2010. The DOL has said that administrator interpretations are published when more clarity on the correct interpretation of a statutory or regulatory issue is appropriate.
Making the proper distinction between employee and independent contractor is a difficult, complicated task and getting it “right” has been an on-going concern of employers because of the potential for liability under, among others, wage and hour and tax laws. With the DOL poised to issue new guidance on the topic, employers are wise to plan to review worker classifications for both independent contractor/employee status in the coming months.