Contractor or Employee? 16 Questions to Answer

The Department of Labor’s independent contractor (IC) rule that went into effect on March 11 is forcing many businesses to triple-check they’re in full compliance. The rule helps to clarify gray areas in IC/employee determinations.

Employers must follow a six-factor test in Labor’s rule to comply with the Fair Labor Standards Act. Classifying someone as an IC means not having to pay that person health insurance or overtime. Misclassifying a worker often results in having to pay back pay and penalties.

The good news: The rule’s only been in effect for three months, giving many employers time to rectify an IC classification mistake now. Back pay and potential fines will only increase by waiting until early next year to fix it.

Verify Contractor Status to Stay in Compliance

Tricia Richardson, account relationship manager for PayrollOrg, shared her insights on the IC rule during a recent Premier Learning webinar.

Richardson recommends asking the following questions to determine if an employee meets all IC qualifiers. All should be answered “no” in order to verify IC status:

Do you tell the worker when and where to do the work?

Do you provide any tools or equipment to use?

Do you require approval of any workers to assist with the work?

Do you tell the worker where to purchase supplies and services?

Do you specify which work must be performed by specific individuals?

Do you specify the order or sequence in which the work must be performed?

Do you provide any instruction on how to complete the tasks?

Do you provide any training to the worker?

Is the worker reimbursed for expenses?

Is the worker being provided with any employee benefits such as insurance or paid time off?

Is the relationship expected to continue indefinitely?

Is the worker providing services that are a key aspect of your business’ work or earnings?

Contractor is Responsible for Tools, Equipment, Expenses

Four additional financial-related questions must be answered “yes” for a worker to qualify as an IC:

Has the worker made a significant investment in the tools and resources required for the work?

Is the worker solely responsible for his or her expenses?

Is there an opportunity for the worker to lose money on the work?

Are the services of the worker available to the general public without restriction and does he or she provide those services to other businesses?