U.S. Department of Labor provides New Guidance on Independent Contractor/Employee Dichotomy

Independent contractor blog 7-16-15

 

The U.S. DOL has issued a new “interpretation” regarding when people who work can be classified as independent contractors, and when they must be classified as employees. This makes a huge difference: an employee is protected by laws ranging from wage protection to whistleblower protection; and are entitled to unemployment if terminated (usually) and workers’ compensation if injured on the job (almost always).  Independent contractors, on the other hand, are not entitled to most of these protections.  The basic idea is that an employee depends on his employer for his livelihood, but an independent contractor sells his or her services to numerous entities on the market and therefore no specific person is responsible for his or her ability to earn a living.

It doesn’t always work like this, though.  Paying an independent contractor is cheaper than paying an employee.  You don’t pay unemployment insurance tax, you don’t have to have workers’ comp insurance, and you don’t have to pay minimum wage or overtime pay.  Again, in theory, this works fine- when you hire a house painter, she’s not your employee for the time she’s working on your house.  You don’t owe her unemployment when the job is done.  The problem arises when an employer seeks to weasel out of its obligations vis-a-vis someone who really does work for it and depend on it for his livelihood.

The US DOL’s new interpretation emphasizes the dependence factor.  The Fair Labor Standards Act- the federal law that governs minimum wage and overtime pay- broadly states that an employee is someone “suffered or permitted” to work for the employer.  The DOL has said that the true test is not control- as it has been interpreted in the past- but rather whether the worker has an independent business and is simply contracting with the employer as it does with various other entities.

This isn’t, in fact, much of a change for people working in Connecticut.  The Connecticut test has always focused on dependence- if you don’t have an independently established business, you are and always have been an employee under Connecticut law.

This is a step in the right direction for the U.S. DOL.  It shows a recognition that employees do depend for their very subsistence on their employers, and the FLSA exists to protect the weaker party in that relationship.

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