Far-Reaching Changes Are On the Horizon, Part II
Independent Contractor Analysis Updated Guidance. The standard salary level adjustment for exempt employees has been proposed at the same time as guidance from the USDOL (in Administrator’s Interpretation No. 2015-1), regarding proper classification of a worker under the term “independent contractor.” The narrowing of the definition means that many previously classified independent contractors will now be properly classified as employees. The ultimate inquiry is whether the worker is economically dependent on the employer or truly in business for himself. The DOL identified six factors when conducting an economic realities test to focus on in determining whether an individual worker is an independent contractor or an employee. These are:
• The extent to which the work performed is an integral part of the employer’s business.
• The worker’s opportunity for profit or loss, depending on his or her managerial skill.
• The extent of the relative investments of the employer and the worker in the business.
• Whether the work performed requires special skills and initiative.
• The permanency of the relationship.
• The degree of control exercised or retained by the employer.
As an example, the DOL noted that a highly skilled carpenter may work for a construction firm, and despite his level of expertise, he may not work on a day-to-day basis in an independent matter. If he does not determine the sequence of the work, order additional materials, or think about bidding the next job, but is instead told what to work and how to perform, where, then he is not an independent contractor, but is simply providing skilled labor. On the other hand, a highly skilled carpenter who provides a specialized service for a variety of area construction companies (such as custom hand crafted cabinets made to order) may be demonstrating the skill and initiative of an independent contractor if he determines when to order materials, the quantity of materials to order, and determines which orders to fill.
Preparing basic job duties records and performing regular records updates is important to establish the nature of the working relationship. The more clear documentation that exists, the better able an employer is to defend its decisions regarding employee status. Employers also need to carefully consider each job (and job description) for staff members, so that workers are properly classified as employees (or not) and as exempt (or not).