Page 23 - BusinessWest March 4, 2024

Employee or Independent Contractor?
There are lots of reasons why a business would want to classify an individual as an independent con- tractor instead of an employee. For starters, employ- ees are entitled to minimum wage and overtime pay protections, while independent contractors are not.
Moreover, Massachusetts employees are afforded rights and protections under the state Paid Family and Medical Leave program and the Earned Sick Time Law. Employees can also take advantage
of workers’ compensation benefits when they are injured on the job, and typically can collect unem- ployment if they lose their job. Independent contrac- tors do not get these benefits.
As a result, agencies like the DOL and the Mas- sachusetts Attorney General’s Office consider mis- classifying employees as independent contractors to be a serious problem. To combat this, DOL recently released guidance that explains how to analyze whether a worker is an employee or independent contractor under the FLSA.
The new rule is generally considered more employee-friendly than previous guidance, and it looks at the ‘economic realities’ of the working rela- tionship. If the economic realities show that the worker is economically dependent on the employer for work, then the worker is an employee. If the eco- nomic realities show that the worker is in business for himself or herself, then the worker is an indepen- dent contractor.
The following factors are used to guide the assessment of whether a worker is an employee under the FLSA or an independent contractor in
business for himself or herself:
• Opportunity for profit or loss depending on managerial skill. If the worker has no opportunity for profit or loss in connection with the project they are working on for the business, they are prob-
ably not in business for themselves, and therefore employee status is suggested.
• Investments by the worker and the employer. This factor looks at whether the individual uses their own tools/equipment and the labor of others to further a true business. If these investments are being made, it suggests the worker is an indepen- dent contractor.
• Permanence of the work relationship. Inde- pendent-contractor relationships are typically set for a defined period of time, or until a project is finished. If the relationship is continuous/indefi- nite in duration, it suggests an employee-employer relationship.
• Nature and degree of control. Independent contractors set their own schedules free from super- vision by their clients or customers. Conversely, if the worker is being supervised and has a set sched- ule, employee status is suggested.
• Whether the work performed is integral
to the employer’s business. This factor looks at whether the work is critical, necessary, or central to the potential employer’s principal business, which indicates employee status. Where the work per- formed by the worker is not critical, necessary, or central to the potential employer’s principal busi- ness, this indicates independent-contractor status.
• Skill and initiative. The focus here is on whether the worker uses their skills in connection
“The new rule
is generally considered more employee-friendly than previous guidance, and
it looks at the ‘economic realities’ of the working relationship.”
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