Total Team Solutions Blog

Update on Independent Contractors

By: John Morlock

In July 2015, the United States Department of Labor issued Administrative Interpretation 2015-1 to clarify the test for determining whether a worker is an employee or independent contractor.  The Administrative Interpretation states that under the Fair Labor Standards Act most workers are employees and requires the “economic realities” test that is commonly used by the courts.  This economic realities test holds that a worker is deemed to be an employee if the individual is dependent on the company.  Many factors are considered when making the determination, including:

• The extent work performed is an integral part of the employer’s business;

• The extent of relevant investments by the employer and worker;

• The worker’s opportunity for profit or loss depending on their managerial skills;

• Whether the work performed required special skills;

• The permanency of the relationship; and,

• The extent of control exercised or maintained over the worker.

Classifying workers can have a material impact on employers as employees are subject to payroll taxes and workers compensation insurance.  As a result, businesses will try to avoid these expenses by classifying workers as independent contractors.  While this may work in the short term, these employers get caught when they terminate a contractor and the worker files to collect unemployment benefits.  Independent contractors are not entitles to collect unemployment benefits, which then often prompts the workers to file a claim that they were in fact employees and requests the state department of labor to launch an investigation.  If caught incorrectly classifying workers as independent contractors the company can be subject to hefty penalties in addition to back taxes on the affected workers.

Since 1988,  Total Team Solutions has provided payroll, employee benefits and human resource guidance to a variety of small & mid-sized businesses.  To learn more about how TTS reduces employer headaches and costs, please utilize the contact page or email us directly at info@ttspro.com

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