A recent case in the United States Supreme Court has emboldened agencies such as the DOL and IRS, and California agencies such as the EDD to attack this issue in an effort to increase tax revenues, as well as civil penalties and interest. In effect, the Supreme Court ruled that it was more about the “economic relationship” between the parties, as well as the duration of the work relationship.

The DOL has since published guidelines, and hired more than 100 auditors for the sole purpose of conducting independent contractor audits. The Supreme Court ruled there was no “single test” for an independent contractor or employee relationship. However the DOL has listed several “factors” in determining the misclassification of independent contractors including, but not limited to:

1. The percentage of the total income of the independent contractor that comes from a single company – If your company is responsible for more than 60% to 70% of a single independent contractor’s wages it may be an issue.
2. The “extent to which work performed is integral” to the provider’s business – If the work performed is integral to the provider’s business, it is more likely that the independent contractor is in fact an employee, and less likely that the independent contractor owns and operates a separate business from the provider of the work.
3. The Nature of the Independent Contractor’s Business Entity – is there a formal business entity, and how much did the Independent Contractor invest in the formation and development of that entity. Was it simply established to cover the relationship in question? Did the company providing work invest in that company? Can the independent contractor affect the profitability of the work performed or the pricing?
4. Professional Licensing / Difficulty of Work – Is the work performed by the independent contractor difficult in nature requiring specialized training or skills? Is a professional decree required to do the work? The less difficult the work, the more likely a finding of “employee” instead of independent contractor.
5. The Permanency of the Relationship – The longer the relationship exists between the independent contractor and the work provider, the more likely a finding of misclassification becomes.