Just when we all thought the argument over which test to use to determine if someone’s an independent contractor or not was settled by the DOL, two more tests (one old, one new) enter the fray.
Earlier this summer, we reported that the DOL had published an Administrator’s Interpretation letter aimed at settling once and for all which test employers should use to distinguish who’s an independent contractor and who’s an employee. The DOL said it wanted employers to use its six-factor economic realities test.
Then, within a matter of weeks, the IRS posted a fact sheet on its website entitled Payments to Independent Contractors. Here’s our report. This action subtly reminded employers to use it’s existing three “Common Law Rules” to determine whether someone’s an independent contractor.
NLRB has its say, too
And now employers have a real mess on their hands, as the National Labor Relations Board (NLRB) has created its own test for determining who’s an independent contractor and who isn’t.
The test was revealed in a board-issued decision involving the nonprofit organization Sisters Camelot, in which a group of canvassers filed an unfair labor practice charge against the nonprofit.
In the case, the board was tasked with determining whether the canvassers were employees who could attempt to organize into a labor union.
In its decision that the canvassers were, in fact, employees, the NLRB unveiled an 11-factor test it will use to determine employee/contractor status in future cases.
Here are the 11 factors:
- Extent of control by employer.
- Whether the individual is engaged in a distinct occupation or business.
- Whether the work is usually done under the direction of the employer or by a specialist without supervision.
- The skill required in the occupation.
- Whether the employer or individual supplies the instruments, tools and place of work.
- The length of time for which individual is employed.
- The method of payment.
- Whether the work is part of the regular business of the employer.
- Whether the parties believe they are creating an independent-contractor relationship.
- Whether the principal is or is not in the business.
- Whether the evidence shows the individual is rendering services as an independent business.
As you can imagine, the test isn’t wholly different from the two issued by the DOL and the IRS. In fact, the NLRB’s test is actually very similar to the IRS’s test in that both hinge on how much control the employer has over the work being performed by an individual.
So what’s an employer to do with these three tests? Here’s the safest course of action: Run your classifications through each test. If they easily pass must with all three, there’s nothing that needs to be done. If they don’t, change work relationships so they do — or simply reclassify the workers in question as employees and compensate them as employees (with tax deductions, benefits, etc.).