New Set of Criteria Will Help Employers Classify Independent Contractors vs. Employees
What is the difference between an employee and an independent contractor? It’s hard to say, and companies often misclassify their employees due to confusion caused by varying definitions. And because independent contractors are exempt from wage and hour and employment discrimination laws, real problems arise when employees are treated as independent contractors1.
With all of this confusion, the Department of Labor’s Wage and Hour Division has announced that it will issue a very clear set of criteria that classifies who is determined a contractor under the FLSA2.
With all of this confusion, the Department of Labor’s Wage and Hour Division has announced that it will issue a very clear set of criteria that classifies who is determined a contractor under the FLSA2.
This need to clearly define what determines an independent contractor comes with the rise of ride sharing and other “on-demand” mobile apps. One of the most popular ride sharing companies, Uber, has come under fire recently for misclassification of its employees. The state of California recently determined that an Uber driver is in fact an employee, and not an independent contractor3. Therefore, Uber is responsible for paying gas and other business expenses. This is not the first employee misclassification lawsuit that Uber has dealt with, but it is the first time the ruling has not been in Uber’s favor.
According to the New York Times, Virginia senator, Mark. R Warner made a statement, “…federal policy makers need to re-examine the 20th century definitions and employment classification we’re attempting to apply to a 21st-centruy workforce.”
With these recent lawsuits, other “on demand” technology companies are looking for other options4. Instacart, an on demand grocery delivery company, has announced that their workers can now choose to be part time employees.
What This All Means
On average, an employee tends to be 25-30% more expensive than an independent contractor4. However, with the DOL Wage and Hour Division announcing a clear set of criteria for what determines an independent contractor, many companies may find themselves with some more employees on their hands. And more employees means an increase in labor costs.
But classifying your employees correctly won’t cost you as much as a potential wage and hour lawsuit.
Plus, putting the right set of tools in place can help you contain your labor costs. With EPAY’s time and attendance software, you can monitor overtime expenses and Affordable Care Act compliance. And that’s just the beginning.
That being said, we will keep you updated on the Wage and Hour Division’s final definition of an independent contractor. For now, check out these best practices for classifying employees correctly, or contact EPAY Systems for more information on how we can help you reduce labor costs by 5% or more.
Resources
- http://hr.blr.com/HR-news/Compensation/Independent-Contractors/Independent-Contractors-vs-Employees-DOL-Knocking#
- http://www.jdsupra.com/legalnews/dol-wage-and-hour-division-to-clarify-51769/
- http://www.nytimes.com/2015/06/18/business/uber-contests-california-labor-ruling-that-says-drivers-should-be-employees.html
- http://money.cnn.com/2015/06/22/technology/instacart-employee-option/