Health care companies may have to review how they classify their workers as either employees or independent contractors under labor guidance issued by the federal government—a distinction that carries implications for home health agencies and the caregivers they “employ.”
The definition of “employ” is the key factor when determining whether a worker is an employee or an independent contractor, according to the guidance released last week by the U.S. Department of Labor’s (DOL) Wage and Hour Division. Although the guidance does not create any new requirements, it is meant to remind employers about the classification of their workers.
“The correct classification of workers as employees or independent contractors has critical implications for the legal protections that workers receive, particularly when misclassification occurs in industries employing low wage workers,” states the guidance issued by David Weil, administrator of the DOL’s Wage and Hour Division (WHD).
According to Weil, the WHD receives “numerous complaints” from workers alleging misclassification in this regard.
“Misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States, in part reflecting larger restructuring of business organizations,” Weil stated in the guidance.
Because a worker’s classification determines the benefits and protections they may receive from employers, proper distinction is critical.
For example, when employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as minimum wage, overtime pay, unemployment insurance and workers’ compensation.
But while independent contracting relationships can be advantageous for workers and businesses, the DOL raises concerns that some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.
The DOL believes that additional guidance on the standards for determining who is an employee under the Fair Labor Standards Act (FLSA) will help with the proper classification of workers and ultimately curtail misclassifications.
In order to determine if a worker qualifies as an employee or an independent contractor under the FLSA, courts use a multi-factoral “economic realities” test, which focuses on whether the worker is economically dependent on the employer, or is in business for himself/herself.
As part of the guidance, the DOL listed six guiding factors that, when analyzed collectively, determine whether a worker is economically dependent on their employer, thereby classifying him/her as an employee or independent contractor.
The guidance asks employers to examine whether the work being performed is an integral part of the employer’s business; if the worker’s managerial skill affects his/her opportunity for profit or loss; the nature and degree of the employer’s control over the worker; among other factors.
As an example, consider two home health care workers: Caregiver A and Caregiver B.
Caregiver A provides home health care to clients, performing assignments only as determined by the home health care agency he works for. He does not independently schedule assignments, solicit additional work from other clients, advertise his services or endeavor to reduce costs.
In this scenario, the worker does not exercise managerial skill that affects his profit or loss, according to the DOL guidance. This lack of managerial skill is indicative of an employment relationship between the worker and the home health care company.
In contrast, Caregiver B provides home health care to clients, but does produce advertising, negotiates contracts, decides which jobs to perform and when to perform them, and recruits new clients. In this scenario, the worker exercises managerial skill that affects his opportunity for profit and loss, which is indicative of an independent contractor.
It is important to note that both of these scenarios fall under just one of the six guiding factors, all of which the DOL says “should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized.”
Instead, the DOL requires that each factor should be considered in light of the ultimate determination of whether the worker is really in business for himself or herself, and thus is an independent contractor, or is economically dependent on the employer, and thus is an employee.
“These factors should be used as guides to answer the ultimate question of economic dependence,” Weil states in the guidance.
Written by Jason Oliva