Are Staffing Agencies Misclassifying Healthcare Workers?

Worker misclassification is a growing issue facing healthcare professionals. In 2022, the U.S. Department of Labor’s Wage and Hour Division identified violations, including instances of worker misclassification, in 80 percent of its reviews of residential care, nursing facilities, home health services, and other health-sector institutions. Individuals such as travel nurses, per diem aides, and allied health professionals are among the most at-risk of being misclassified as independent contractors, which may have direct, adverse implications on affected workers.

What Does it Mean to Be Misclassified as an Independent Contractor in Healthcare?

The Fair Labor Standards Act (FLSA) establishes federal standards for employees and independent contractors. Federal worker protections include a minimum wage, overtime pay requirements, child labor standards, and guidelines for proper worker classification.

Staffing agencies misclassify workers by labeling them as independent contractors, rather than employees, when the performance of their work functions like an employee by FLSA standards. Online job platforms misclassify employees as independent contractors in at least two ways:

1. Staffing agencies may use app-based online platforms to place nurses, nurse aides, and other vital staff in health care facilities. In doing so, the agencies misclassify these workers as independent contractors as they decide how and when the work will be performed.
2. Many staffing agencies require their workers to sign non-compete clauses or other agreements to bar them from working for competing organizations, therefore controlling with whom workers can connect.

The Department of Labor’s Economic Reality Test

The Department of Labor (DOL) uses an economic reality test, created and regulated under the FLSA, to determine whether an individual should be classified as an employee or an independent contractor. See 29 CFR § 795.110. This test has six main factors that are considered holistically to determine a worker’s economic dependence on their employer, including:

1. Opportunity for profit or loss depending on managerial skill. If a worker has no opportunity for profit or loss, or if the worker does not make their own decisions for when and how to work, whether they can hire others, or how much they charge for their labor, then they are likely an employee.
2. Investments by the worker and the potential employer. If a worker makes similar capital or entrepreneurial investments as the potential employer, then they may be considered an independent contractor.
3. Degree of permanence of the work relationship. The DOL may deem an individual to be an employee if the duration of their work is indefinite, or if their work is continuous or exclusive of work for other employers.
4. Nature and degree of control. This refers to a workers’ ability to control the performance of their work, the economic facets of the working relationship, or the supervision of their work.
5. Extent to which the work performed is an integral part of the potential employer’s business. If an individual’s work is critical to the potential employer’s business, then they may be an employee.
6. Skill and initiative. If a worker uses specialized skills or requires training from the potential employer to perform their job, then the individual may be considered an employee.

How to Determine if a Worker Is Misclassified Under the FLSA

Under the FLSA, healthcare workers use the economic reality test to understand if they have been misclassified. Factors relevant to worker status include if the place of work controls the “how,” “when,” and “where” of their work, if the potential employer has direct control of financial aspects of a job, and if there are written contracts between the parties.

In the healthcare industry, worker misclassification is not an isolated incident. Many healthcare staffing agencies utilize uniform business models, meaning that the same rules apply to all workers. When an agency classifies one worker as an independent contractor, other agency workers are similarly also likely classified as independent contractors.

By reviewing agency rules and the tax documents, workers can understand how their agency classifies them and their coworkers, which can indicate if there is a widespread issue.

What Wages, Protections, and Benefits Are Healthcare Workers Losing Because of Misclassification?

When healthcare workers are misclassified as independent contractors, they are not entitled to the rights and protections given to employees pursuant to the FLSA. As a result, workers may be denied minimum wage and overtime pay, ineligible for employment-based benefits such as health insurance, may not qualify for compensation for workplace injuries, and may not be covered by labor laws such as anti-discrimination and sexual harassment protections. Additionally, independent contractors may not qualify for paid sick or family leave, and they must assume the full financial cost of Social Security and Medicare contributions.

The misclassification of healthcare workers has an adverse impact on their financial health and wellbeing. According to a 2023 report by the Economic Policy Institute, a home health aide classified as an independent contractor could lose out on approximately $9,529 per year in income and employee benefits when compared with their potential earnings as an employee. Improper classification of workers has become a widespread issue in the healthcare industry, harming healthcare professionals.

How to Act

Misclassified healthcare workers can report their situation to the IRS, DOL Wage and Hour Division, or bring private civil suits for backpay or reimbursement.

Because healthcare worker misclassification is rarely an isolated incident, workers can also file a class action lawsuit, which occurs when many individuals (class members) suffer the same injury. The class representative takes on the responsibility for filing and litigating the class action on behalf of other affected workers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.