The So-Called Gig Economy: When Independent Contractors Are Really Employees
What self-employed people need to know about their rights
The “gig economy” is a big topic lately, as companies look to conserve costs by outsourcing work. Hiring independent contractors instead of employees may allow them to save money on payroll, health insurance, and benefits.
But if you’re someone who is part of the on-demand workforce, you may have a different view of the situation. While some independent contractors enjoy the opportunity to run their own businesses, others may find that they’re held to all the expectations of regular employment, but without any of the benefits.
With 7.6 million people estimated to be participating in the gig economy by 2020, it’s more important than ever for on-demand workers to ensure that they’ve been properly classified.
Let’s take a look at how the law views independent contractors and employees.
Six questions to ask about your status
The U.S. Department of Labor (DOL) has a framework for determining who is an employee and who is an independent contractor.
If you’re unsure what your status should be, consider the following six questions. Keep in mind, many of these questions may not have yes-or-no answers. Rather, the DOL uses them as a basis for examining individual employment relationships.
- Is your work integral to the company’s business? That is, is the work you do part of a process or service that the company provides to others?
- Do you manage people or processes? If so, do your decisions affect the company’s potential profits or losses?
- Do you have an investment in the facilities or equipment needed to do the job? Here, the DOL examines the relative investments by both the company and the individual. For example, if you bear some risk for a loss, it’s possible that you may be considered an independent contractor. However, if you have to invest in equipment or tools to complete work for the company, that alone may not indicate contractor status.
- Do you exercise independent business judgment? That is, are you economically dependent on the company, or do you take the initiative to compete with others on the open market for other work opportunities?
- How permanent is your relationship with the company? Are you permanently or indefinitely working for a company, or is your work project-based?
- Who controls the conditions of the relationship? Who determines pays, how the work is performed, whether or not you can hire others, or whether you can work for other companies simultaneously? Keep in mind that working from home does not automatically denote contractor status because the employer may still control much of the work.
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Obviously, questions about misclassification are specific to each situation. That’s why it’s a good idea to speak to an attorney if you have questions about your employment status.
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