Yesterday the United States Department of Labor took its strongest position to date on what is an employee vs. an independent contractor. It published a fifteen page Administrator’s Interpretation that depicts most workers as employees under the Fair Labor Standards Act.
This new interpretation applies a six-factor economic realities test to determine how a worker should be classified:
1. Is the Work an Integral Part of the Employer’s Business?
2. Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
3. How Does the Worker’s Relative Investment Compare to the Employer’s Investment?
4. Does the Work Performed Require Special Skill and Initiative?
5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?
6. What is the Nature and Degree of the Employer’s Control?
No one factor determines a worker’s status, but when considered as a whole they establish if the worker is truly an independent business or is economically dependent on the employer.
The interpretation uses a cleaning service example to illustrate how to apply the investment comparison factor:
“A worker providing cleaning services for a cleaning company is issued a Form 1099-MISC each year and signs a contract stating that she is an independent contractor. The company provides insurance, a vehicle to use, and all equipment and supplies for the worker. The company invests in advertising and finding clients. The worker occasionally brings her own preferred cleaning supplies to certain jobs. In this scenario, the relative investment of the worker as compared to the employer’s investment is indicative of an employment relationship between the worker and the cleaning company. The worker’s investment in cleaning supplies does little to further a business beyond that particular job.
“A worker providing cleaning services receives referrals and sometimes works for a local cleaning company. The worker invests in a vehicle that is not suitable for personal use and uses it to travel to various worksites. The worker rents her own space to store the vehicle and materials. The worker also advertises and markets her services and hires a helper for larger jobs. She regularly (as opposed to on a job-by-job basis) purchases material and equipment to provide cleaning services and brings her own equipment (vacuum, mop, broom, etc.) and cleaning supplies to each worksite. Her level of investments is similar to the investments of the local cleaning company for whom she sometimes works. These types of investments may be indicative of an independent contractor.”
While we will have to see how this interpretation is enforced it appears that it will be more difficult for companies to classify their workers as independent contractors.
Read the entire Department of Labor document.
Read the CBT article about Homejoy going out of business.
Tom Stewart and his wife, Janice Stewart, are co-owners of Castle-Keepers, the 1st company to achieve CIMS certification. Tom is a nationally-recognized leader & innovator in the house cleaning industry. He is co-founder and Publisher of Cleaning Business Today.