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Employee or independent contractor: DOL’s ‘economic realities’ test

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in Employment Law,Human Resources

To classify workers as either employees or independent contractors, the Department of Labor says employers should use this “economic realities” test. The DOL’s new guidance makes clear that employers should consider all points equally, not put too much emphasis on #6 (employer control).

1. Is the work an integral part of the employer’s business? Example: Carpenters are integral to a construction business, software coders are not.

2. Does the worker’s managerial skill affect his or her opportunity for profit or loss? A janitor cleans for a cleaning company that assigns him to clients; he doesn’t schedule clients himself. He is an employee.

3. How do the worker’s and the employer’s relative investment compare? A cleaner uses a cleaning company’s truck, equipment and cleaning solutions. She’s an employee. On the other hand, if an individual purchases a special cleaning vehicle and equipment and solicits clients, she may be an independent contractor.

4. Does the work performed require special skill and initiative? A skilled carpenter builds cabinets for a construction company. He’s an employee. If he has his own shop, buys his own wood and solicits special contracts, he may be a contractor.

5. Is the relationship between the worker and the employer permanent or indefinite? An editor has worked with the same publisher for years, editing its books. She’s an employee. Another editor works with many publishers and sometimes turns down assignments. She may be an independent contractor.

6. What is the nature and degree of the employer’s control? A nurse must accept every client a registry refers to her. She’s an employee. If a nurse can turn down clients, she may be an independent contractor.

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