New guidance has been released by the Department of Labor related to properly determining whether a worker is an employee or an independent contractor (IC).  None of the six factors that determine employee v. independent contractor status are new.  What is new is that worker classification depends on the totality of the factors—i.e., not on any one factor. Because the factors are subjective and depend on the facts of individual cases, some factors may become more important over time.

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The factors below are general descriptions, not definitions of the law:

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Opportunity for profit or loss. The lack of opportunity for a profit or loss indicates employee status. Determining or meaningfully negotiating fees suggests the opportunity for profit or loss, indicating IC status. Whether this opportunity is present depends on whether a worker:

• can accept or decline job assignments;
• chooses the order and/or time in which job assignments are performed;
• engages in marketing, advertising, or other efforts to expand his or her business or secure more work; and
• makes hiring decisions, purchases materials and equipment, and/or rents space.     

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‍Worker investments. A worker who invests in equipment and marketing like an employer indicates IC status.

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Permanence of the work relationship. A permanent or exclusive working relationship with one employer indicates employer status. A relationship that is of defined duration, non-exclusive, project-based, or sporadic because the worker markets services to other entities indicates IC status. This factor is tricky because working in regular, fixed periods may indicate IC status, but seasonal or temporary work by itself may not.

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Nature and degree of control. Employer control over the worker’s permanence or remuneration indicates status—e.g., setting work schedules, supervising safety, quality control, or contractual or customer service standards. An exception is when employer control is based on compliance with federal, state or local regulations.

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How integral the work is to the employer’s business. This refers to the work—not the worker. In other words, for an ad agency, using a specific artist to design pamphlets may indicate employee status because their work is integral to the agency’s business. For a garden equipment company, using the same artist to design pamphlets may indicate IC status because their work is not integral to the company’s business.

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Skill and initiative. Bringing specialized skills to work does not necessarily indicate IC status because both employees and ICs may have such skills. For example, a sales representative who brings phenomenal sales skills to a sales job may or may not indicate IC status. Using a sales representative who created software to successfully mine sales leads may.

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Information provided courtesy of the American Institute of Professional Bookkeepers General Ledger Newsletter, Volume 41, No. 3.

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