what is an independent contractor (in today's world)?

In recent years, we've seen a significant increase of investigations into the misclassification of workers as independent contractors conducted by the Department of Labor (“DOL”). This increase was unsurprising, given Secretary Perez’s statement in December of 2014 that such misclassifications were departmental priority, and the subsequent release by the Wage and Hour Division of a memorandum of guidance on the issue in July of 2015.

Private independent contractor misclassification claims are also on the rise, both nationally and in many hotbed states, such as California and Massachusetts – a trend likely to continue with more states jumping on board in search of missed revenue. Given this climate, employers are well advised to conduct self-audits to ensure that all workers are properly classified.

There have been many so-called "tests" published over the years for this purpose, and most tend to leave you without a clear indication of whether your workers are independent or not. More and more cases are heading in a similar direction, looking at just a few things to guide a decision.

Take a look at these factors and ask yourself if you can show that:

The worker is free from control and direction in connection with the performance of the service, both under the terms of the contract and in fact;
The service is performed outside the usual course of the business of the employer; and
The worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Of these, the second prong is usually the hardest to meet. The relevant question often focused on is “whether the service the individual is performing is necessary to the business of the employing unit, or merely incidental.” Critical to this inquiry is the scope of the employer’s business, which is determined largely by looking at how the entity holds itself out. For example, courts look at the entity’s own public-facing definition of its business contained in its promotional literature, online presence, annual reports, and other materials.

If you're making significant use of Independent Contractors, we strongly advise a free and confidential consultation to discuss your current approach and gain insight. Please contact us today.