The U.S. Department of Labor issued the “Administrator’s Interpretation No. 2015-1” in July of 2015. This department wants to enforce classification to protect misclassified employees and recover lost tax revenue from employees who are misclassified as Independent Contractors.
The Administrator’s Interpretation No. 2015-1 states: “When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.”
This new “guidance” could pose a big threat to those Owner-Operators in the trucking industry that are hired as Independent Contractors because, under this new guidance, most Independent Contractors would be considered employees. One recent example is the highly publicized lawsuit against FedEx on misclassified drivers. The trucking industry is specially affected since it heavily relies on contractors. And while there are many companies treating independent contractors appropriately, there are a vast number of companies that don’t, in order to save cost and avoid compliance with labor laws.
The Obama administration is pushing this new interpretation through the Department of Labor, the Internal Revenue Service and State and Local Governments and agencies with the goal of benefiting from the correct classification of employees through the taxes they pay. The DOL utilizes the Economic Realities Factors Test to be able to differentiate employees from Independent Contractors. The test consists on the following:
- Is the work an integral part of the employer’s business?
- Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
- How does the worker’s relative investment compare to the employer’s investment?
- Does the work performed require special skill and initiative?
- Is the relationship between the worker and the employer permanent or indefinite?
- What is the nature and degree of the employer’s control?
Equally considered, the factors should be used as guides to answer that ultimate question of economic dependence and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee).
Advice Writer: Attorney Gilber Geilim