Recently, at the end of April 2019, the Wage and Hour Division of the U.S. Department of Labor issued an opinion letter regarding independent contractor classification under the Fair Labor Standards Act. In it, the DOL outlined six factors to consider when determining whether a person is an employee or an independent contractor.
- The nature and degree of the potential employer’s control;
- The permanency of the worker’s relationship with the potential employer;
- The amount of the worker’s investment in facilities, equipment, or helpers;
- The amount of skill, initiative, judgment, or foresight required for the worker’s services;
- The worker’s opportunities for profit or loss; and
- The extent of integration of the worker’s services into the potential employer’s business.
The issue of whether to classify a worker as an employee of a company or an independent contractor can often be confusing. The primary differences between the two is that an employer must generally withhold income taxes, withhold and pay Social Security and Medicare taxes and pay unemployment tax (if applicable) on wages paid to an employee. However, an employer does not generally have to do the above for independent contractors because they are self-employed. Generally, the following definitions provide a broad guideline for the employee/independent contractor distinction:
- Employee = anyone who performs services and the company can control what is done.
- Independent Contractor = anyone who performs services and the company only has the right to control the result of the work and not the means and methods of accomplishing the result.
The IRS further offers classification guidance regarding the three primary parameters of Behavioral Control, Financial Control, and Relationship of the Parties. To learn more about who are considered employees or independent contractors, you can also view their published 2019 Employer’s Supplemental Tax Guide.
For additional guidance, contact the HR Services Hotline to discuss any of your Human Resource questions or issues including employee classification and Wage and Hour questions.
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Part of the information above was provided by our friends at Equifax Workforce Solutions. It is intended as general guidance and is not intended to convey specific tax or legal advice. For a legal opinion, please consult your lawyer.