Most of you have probably seen the headline battle that has pitted newcomer Uber against the transportation industry. In our state, it was Uber, founded ten years ago in California, up against Mears Transportation, founded in Florida over 80 years ago. Mears treats their drivers as employees, and therefore, is responsible for withholding income tax, social security, Medicare, etc. from an employee’s paycheck. Uber, on the other, developed a business model where their drivers are independent contractors. As such they are responsible for reporting their income to the tax authorities and paying the appropriate taxes.
So, what are the rules that define Independent Contractors from an Employee?
The U.S. Department of Labor (DOL) recently issued a proposed rule to clarify the difference. There are two primary core factors to consider when determining one’s employment classification. Other considerations will be secondary factors.
Economic Reality Test
Core Factors
- How much control does the worker have over the amount of work they do? Does the worker set his or her schedule and choose their assignments? Are they able to work with little or no supervision? Is the worker able to work for others and not be held to employer exclusivity?
- Does the worker have the opportunity to make a profit based on their initiatives, such as their managerial skills or business acumen? Does the worker manage investments such as helpers, equipment, or materials?
Other considerations
- The skill required to do the work
- The degree of permanence of the working relationship between the worker and the employee. A worker could be considered an employee by the DOL if the worker works for no one else and they are full-time, and their contract is ongoing, not of a set duration or sporadic.
- Is the worker a component of an employer’s integrated production process?
This proposed rule by the DOL to clarify who is an independent contractor was issued on September 22, 2020. There is a 30-day comment period after the proposed rule’s official publication in the Federal Register.
Source: DOL Clarifies Who Is an Independent Contractor in Proposed Rule by Allen Smith, J.D.
