Employee vs. Independent Contractor: Headfirst Into the Weeds
The Sensenig Law Firm has shared several posts about the ever-shifting standards used by courts and administrative agencies – including, notably, the Department of Labor (“DOL”), Equal Employment Opportunity Commission (“EEOC”), and Internal Revenue Service (“IRS”) – to determine whether any given worker should be classified as an employee or as an independent contractor. These posts were intended to give you a broad overview of the 6-factor “economic realities” test. For a refresher, you can find the latest classification criteria here.
For a deeper dive into what each of these six factors actually entail, you can refer to this slightly older article, which has recently gone from outdated to current, as President Biden’s DOL has returned to the “old” pre-2021 standard here.
Those articles were designed to catalogue the six “weighted factors” which, in the event of a dispute, the government uses to determine whether any given worker was appropriately classified; the articles were intended to give you a brief explanation of what each factor represents.
This post, by contrast, is laser-focused on exactly one of these factors: “nature and degree of control.” If this phrase seems self-explanatory to you, that is probably because you are reading the words through a lens of plain meaning and common sense, which (unfortunately) do not always have a place in an American courtroom; as attorneys, our response to a phrase like that is “please rigorously define every word in that sentence.”
The IRS, to its credit, has recently endeavored to do just that. For our part, this post will condense the IRS hyper-technical reading into an easily digestible checklist that you can use to initially evaluate whether your workers (or yourself, for that matter) are sufficiently autonomous to satisfy the “nature and degree of control” factor of independent contractor classification, or whether you are actually dealing with rank-and-file employees, no matter how badly you (or they) might prefer otherwise.
A quick aside: these six factors re among the most misinterpreted things in employment law. American society will likely never recover from the damage inflicted by the misconceptions imposed upon otherwise extremely intelligent, sophisticated individuals by “Google University.” By way of example: at a networking event, we once personally listened to a then-successful employer (who was not a client, to be abundantly clear) argue that their “independent contractors” were entirely free of “direction and control” because they had the ability to take days off whenever they wanted. Provided, of course, that they submitted the appropriate form two weeks in advance, arranged for a co-worker to cover their shift, and receive prior written approval from the “supervisor”. But other than that, the speaker was adamant that these “independent contractors” were free to come and go as they pleased!
You can guess how that arrangement ultimately turned out for them and their entire staff of “independent contractors.” Suffice to say, you just cannot trust traditional, general-knowledge sources to provide you with reliable information for highly technical issues in any field, and law is no exception. So, with that in mind, let’s get technical.
There are some things you just cannot summarize better than the summary provided by the IRS so this post will borrow the IRS language: “Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker.” The IRS is quick to point out that a putative employer need not actually “direct or control” in practice; the mere fact that they could, in theory, exercise such direction or control is sufficient to tip this factor into “employee” classification.
The IRS provides four categories of “control,” in this context:
Type of instructions given, e.g.:
When and where to do the work.
What tools or equipment to use.
What workers to hire or to assist with the work.
Where to purchase supplies and services.
What work must be performed by a specified individual.
What order or sequence to follow when performing the work.
Degree of instruction;
The more detailed the instructions, the more control the business exercises over the worker; the more control the business exercises over the worker, the more likely you’re dealing with an employee, not an independent contractor.
Evaluation systems; and
Employees are judged by how well they follow workplace policies and procedures; contractors are judged solely by the outcome of their work.
Training.
You do not train independent contractors. You engage an independent contractor precisely because they already possess the skills you need to accomplish any given project. So, if you’re providing training – especially ongoing training – you’re talking about an employee.
Now, while this criterion is about as clear as the IRS has ever been –these lists still beg certain questions and require certain clarifications. For instance: failing (or satisfying) a single factor is not enough to resolve the question of appropriate classification. Factors 1(a) and 1(f) might suggest “employee,” while factors 1(b) – 1(e) all suggest “contractor. “
To illustrate, consider the quintessential independent contractor: your local plumber. You can obviously instruct your local plumber “when and where” you need work done, and (to a certain extent) you could even dictate in what order you’d like them to work, e.g. “we need the sink fixed before the shower.” But if you started insisting that they use your preferred brand of tools or demanding that they not make phone calls on “company time,” the plumber would rightly look at you like you had lost your marbles.
The fact is that no user-friendly digest could possibly direct the average person and average employer to classify any given worker appropriately 100% of the time. There are just too many decades of caselaw, definitions within definitions, and bizarre (and frankly arbitrary) industry-specific exceptions; don’t even get us started on the contractor classification of realtors or long-haul truck-drivers.
We hope you found this post helpful! Lately, the IRS seems unusually inclined to provide guidance on tricky topics like this, so we wouldn’t be surprised to see additional guidance issued on the other five factors. If enough people are interested, we’d be happy to provide similar write-ups as such guidance trickles out. Keep in mind the Chevron doctrine, which permits courts to give Agency interpretations preference, is a doctrine that has been heard before the U.S. Supreme Court in 2024 and may be turned upside down….. We will keep you posted on that topic as well.
Please let us know how we can be of assistance to you as you navigate this not so easy weighted factor test.