Dept. of Labor Coming After Business, Again

dept of labor and contractors

If you use independent contractors in your small business, you may find yourself being targeted by the Department of Labor, again.

You’ll recall that the DOL recently started the process of redefining exempt and nonexempt employees in a way that would make employers liable for a boatload of new overtime payments. On the heels of that effort, the DOL issued a 15-page memo describing its standards for judging whether someone is an independent contractor or an employee.

The DOL will now examine what it calls “economic realities” when making this determination. This basically means whether the worker is economically dependent on the employer or not. If the worker is economically dependent, then that person cannot be in business for him or herself; or so goes the DOL logic. The DOL will be asking questions like these to render its judgment:

  • Is the person’s work an integral part of the company’s business?
  • Does the person exercise managerial skills that contribute to the company’s profit or loss?
  • How much control does the company have over the worker?
  • Does the worker have a special skill?
  • How permanent is the working relationship?

Reviewing this situation for the Legal news website Lexology, the Foster Pepper law firm wrote, “The Interpretation signals DOL’s commitment to aggressively pursue companies that rely on independent contractors rather than treating workers as employees. These companies should carefully examine their relationship with workers under the Interpretation and under the tests applied by other courts and agencies.”

The take-away here is that you need to look at how you are using contractors as well as the contractors themselves. If you have a staff of 11 – yourself and 10 contractors – and you are the sole client for each contractor, you may end up on the painful side of a DOL action.

But before I leave the topic I want to make one more point and that’s how the federal government is always years behind the people it is entrusted to govern.

For a variety of reasons, including the globalization of commerce, the Internet, the severe recession, the anemic recovery, poorly funded Baby Boomer retirement accounts, and the huge student debt burden, we are now in a growing “gig economy.” This is a fact everyone seems to know and accept – except federal regulators.

You see, federal programs and the funding for federal programs are dependent on a 1960s style economy that just doesn’t exist any more. Unfortunately, rather than adjust regulations and programs to address the economy as it is and as it is evolving, the elected officials and bureaucratic regulators try to shoehorn business owners and workers into a model that no longer fits.

In the case of the DOL’s review of contractors, this will likely cause pain for both employers and contractors. Washington D.C. needs to start looking beyond the Beltway to see how real business owners are managing their companies to stay profitable and grow in a hyper competitive global marketplace.

Officials also need to see that the flexibility and opportunities afforded through contracting in the “gig economy” is a valuable asset for many workers, even though Uncle Sam hasn’t yet figured out a way to tax that asset!

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Image: Frances_Perkins_Building, by AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons.