United States: Trump Administration DOL Issues First Substantive Guidance On Independent Contractors

The Wage and Hour Division of the Department of Labor (DOL) issued a Field Assistance Bulletin (FAB) on Friday, July 13, 2018, titled "Determining Whether Nurse or Caregiver Registries Are Employers of the Caregiver."1 Although this FAB focuses on the caregiver registry industry, it provides the new administration's first substantive guidance on independent contractor classification.

Last June, the DOL withdrew its 2015 Administrative Interpretation (AI) on independent contracting but did not replace the AI with other guidance, stating only that removal of the AI "does not change the legal responsibilities of employers under the Fair Labor Standards Act."2 The 2015 AI on independent contracting, in a radical shift of direction for the DOL and departure from IRS standards, asserted that lack of control over the worker was not a determining factor for finding independent contractor status.3 The DOL concluded in the 2015 AI that "most workers are employees under the FLSA's broad definitions."

Returning to its historical approach, the DOL in the new FAB states it will consider the "totality of the circumstances to evaluate whether an employment relationship exists" and "will evaluate all factors ... to reach appropriate conclusions in each case."4 The factors the DOL will consider in the caregiver registry industry indicate a return to the focus on historically important factors, including control of the work performed by the independent contractor.  For example, the DOL provided the following guidance regarding common registry practices. The recurring theme, which applies across industries, is that registries may avoid a determination that they are the caregivers' employer if they avoid controlling and/or becoming involved in the client-caregiver relationship.  Helpfully, however, the FAB acknowledges that registries can serve as the liaison between the independent contractors and caregivers without defeating the independent contractor relationship:

  • Conducting Background and Reference Checks: Conducting background checks, confirming credentials, and performing other quality-control measures do not indicate employment. Registries can cross the line into employment if they use subjective criteria to evaluate the suitability of independent contractors for referral to clients.
  • Hiring and Firing:  Once a registry informs a client of independent contractors who meet the client's objective requirements, the client alone has authority to hire and fire the independent contractor from that engagement. Registries that are more actively involved in hiring, or that fire an independent contractor for violating the law, industry standards, or the client's directives, may be considered employers.
  • Scheduling and Assigning Work:  Registries cannot control independent contractors' schedules or manage the work independent contractors perform. Registries can facilitate initial communications between independent contractors and clients, but, afterwards, the independent contractors and clients must determine the schedule and the scope of work.
  • Controlling the Work:  Independent contractors and clients must manage their own relationship and the services provided. Registries cannot exercise control by giving training or instructions, evaluating independent contractors' performance, requiring independent contractors to report to the registry instead of the client in the event of shift cancellations, limiting independent contractors' work hours or number of clients, or prohibiting independent contractors from working directly with clients outside of the registry.
  • Setting the Pay Rate:  Independent contractors and clients must set the pay rates, but registries can act as a liaison and advise on typical market rates without straying into employer territory. A third-party payor, such as Medicaid or other government programs, dictating the pay rates does not indicate the registry is the employer.
  • Continuous (Hourly) Pay for Services:  Charging fees based upon the number of hours an independent contractor works may indicate an employment relationship, as the registry may have an ongoing interest in how many hours the independent contractor works and the accuracy of the reported work hours. One-time fees and administrative charges do not indicate employment.
  • Providing Payroll-Related Services:  Registries can perform "payroll-related functions," including collecting clients' payments and disbursing the payments to independent contractors without being considered the employer. Advancing pay to independent contractors from registry funds, as opposed to waiting for the clients' payments, may indicate employment.
  • Tracking Hours Worked:  "Active creation and verification" of independent contractors' time records point toward employment. Registries are limited to requiring submission of accurate time records and collecting time records that the client has verified or adjusted for purposes of any payroll processing services the registry provides.
  • Purchasing Equipment and Supplies:  A registry's operational expenses and investment in office space do not indicate employment so long as the registry does not provide equipment or materials to independent contractors.  Investment in training, professional licensing, or insurance for independent contractors point toward employment.
  • Receiving EINs or 1099s:  Independent contractors acquiring Employment Identification Numbers from the IRS, complying with state law by carrying liability insurance, or being issued an IRS 1099 form are not relevant to whether those individuals have been properly classified as independent contractors.

The FAB provides long-awaited and specific guidance on how to structure independent contractor relationships in the caregiver registry industry but also more generally, and it signals the DOL's return to the traditional, multi-factor balancing test to determine independent contractor status with a primary focus on control of the worker.  This guidance is welcome news for employers following the tougher new California independent contractor standards under the Dynamex decision.

Independent contracting will remain one of the most challenging issues facing the business community because of the stark differences in legal standards between federal and state laws—and even among different laws in the same state (e.g., taxes versus wage-hour versus unemployment). In light of the DOL's new FAB and the Dynamex decision, businesses should consider reviewing their independent contractor relationships under both federal and state laws.

Footnotes

1 U.S. Dep't of Labor, Wage & Hour Div., Determining Whether Nurse or Caregiver Registries are Employers of the caregiver (July 13, 2018), available at  https://www.dol.gov/whd/FieldBulletins/fab2018_4.htm.

2 See Littler Mendelson, P.C., Michael J. Lotito & Ilyse Schuman,  DOL Withdraws Joint Employer and Independent Contractor Guidance, Littler ASAP (June 7, 2017).

3 U.S. Dep't of Labor, Wage & Hour Div., Administrator's Interpretation No. 2015-1 (July 15, 2015) (withdrawn June 7, 2017).

4 U.S. Dep't of Labor, Wage & Hour Div., Determining Whether Nurse or Caregiver Registries are Employers of the caregiver (July 13, 2018), available at  https://www.dol.gov/whd/FieldBulletins/fab2018_4.htm.

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