The Department of Labor (DOL) makes reference to Economic Realities or questions you can ask to help determine whether a worker is truly an employee or a legitimate independent contractor. Basically, an independent contractor is economically independent. He or she is in business for himself or herself.
In this article the DOL asks six questions to help sort out these Economic Realities:
- Is the work an integral part of the employer’s business? Of course, “integral” is the integral word here. Could the business run without the type of work that is being performed? What would a court of law say?
- Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? Does the worker schedule his/her own assignments, look for jobs from other clients, or try to reduce his/her costs?
- How does the worker’s relative investment compare to the employer’s investment? Who bought the tools, the vehicles, the supplies, the materials used to do the job?
- Does the work performed require special skill and initiative? Skill level alone is not enough to determine that someone is an independent contractor; business skills, judgement and initiative must be measured, as well, to determine economic independence.
- Is the relationship between the worker and the employer permanent or indefinite? A worker whose past history with a single employer has indicated permanence in their relationship would be considered by DOL to be an employee and not an independent contractor.
- What is the nature and degree of the employer’s control? Is the employer providing the job and dictating the hours the worker spent working? That’s an employee.