Contract Worker or Employee?

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No one can tell by looking – is that painter an employee or a sub? And what if they’re being treated as one type, but legally should be classified as the other?

Last week, the Department of Labor issued a new Final Rule to distinguish between the two.

The rule, issued January 6, included the following clarifications:

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
  • Identifies and explains two “core factors” to help you determine whether or not that worker is in business for themselves:
    • The nature and degree of control over the work.
    • The worker's opportunity for profit or loss based on initiative and/or investment.

Lee R. Schroeder, Ohio licensed attorney at Schroeder Law LLC in Putnam County, further clarified this in an online article. “If the worker’s only way to earn more money is to work more hours or use the business’s resources to be more efficient, the worker is more likely to be an employee,” he wrote.

If there are still questions, the Department of Labor provided three points to clarify from here.

  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.

Schroeder adds that if your workers are performing the core service of your business, they are likely to be employees. He specifically uses painters as an example. If you hire people to paint, they are likely to be employees. A delivery driver, who works for five other contractors might fall under the sub category.

Make sure to contact your accountants and legal advisors if you have questions from here.

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I have lots of experience in this field, as I’ve had both over the decades. It’s very difficult to find or even clarify workers as sub contractors if they are not self employed. Often times one can find those self employed contractors who start acting as employees too. They start using your equipment and tools, would rather work by the hour than the job, and wait for direction on any job. So one really has to be careful on who they hire. I find it is best to use those who really are self employed sub contractors and pay them the wage they expect, give them an opportunity to discuss the job as they would do it . Make sure they carry their own insurance and have their own clients. It’s not that you can’t have a sub contractor for a long time, it’s that the sub contractor has to know that when the job or jobs are done, they are on their once again. It’s not up to you to keep them working. They will understand this too, and most will be prepared for it when the time comes.

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