Dive Brief:
- On July 15, 2015, the DOL published an Administrator’s Interpretation letter, penned by DOL Administrator David Weil on how employers should distinguish between employees and contractors and classify accordingly, according to an article at HRMorning.com.
- Basically, Weil said employers and courts should use the DOL’s six-factor “economic realities” test to determine whether someone is a true independent contractor or not, HRMorning reports.
- Unfortunately, a month after the DOL issued its interpretation letter, the IRS posted a fact sheet on its website entitled Payments to Independent Contractors, explains HRMorning, adding that it makes no mention of the DOL’s “economic realities test.” But it does point out what it calls “Common Law Rules” for determining whether someone’s an independent contractor.
Dive Insight:
Despite the DOL’s best efforts to create a singular test for determining independent contractor classifications, the IRS here appears to have undermined the agency’s efforts — although likely not intentionally, says HRMorning.
Bottom line: Employers still have two tests with which their worker classifications have to pass muster.
The best course of action, according to HRMorning? Run classifications through both tests. If they pass, great. If not, 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.).