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Contract Worker or Employee?

13 January, 2021

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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