IRS reminder: Your contractors have to pass this test, too

by Christian Schappel

Earlier this summer, the DOL issued a statement that most thought laid to rest any argument as to which independent contractor classification test employers should follow. But since then, the IRS has essentially said, “Not so fast.” 

On July 15, 2015, the DOL published an Administrator’s Interpretation letter, penned by DOL Administrator David Weil on how employers should distinguish between employees and contractors and classify accordingly.

To cut to the chase, Weil said employers and courts should use the DOL’s six-factor “economic realities” test to determine whether someone is a true independent contractor or not.

In a nutshell, the test is designed to measure a person’s “economic dependence” on a single business. The greater a person’s dependence on that business, the more likely it is that person’s an employee.

The six factors of a person’s working relationship with a business that are to be evaluated under the test:

1. The extent to which the work performed is an integral part of the employer’s business
2. The worker’s opportunity for profit or loss depending on his or her managerial skill
3. The extent of the relative investments of the employer and the worker
4. Whether the work performed requires special skills and initiative
5. The permanency of the relationship, and
6. The degree of control exercised or retained by the employer.

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