How Does the Department of Labor Classify Gig Workers?

If the worker classification issue was not already complicated enough, we now have the gig economy and its workers to contend with. We also have different interpretations among the U.S. Department of Labor and several states. It all makes for a very messy situation for employers the Department of Labor considers virtual marketplace companies (VMCs).

A VMC is generally an online service that acts as a connection point between customers and market providers. Common examples of VMCs include popular ride-hailing services Uber and Lyft. The companies do not actually provide the rendered service. Rather, they supply access to those who do.

So where does the Department of Labor stand on VMCs and worker classification? According to Dallas-based BenefitMall, a letter released by the department this past summer (2019) indicates they consider VMC service providers independent contractors. The letter is in stark contrast to one issued by the Obama administration in 2015.

How the Determination Was Made

BenefitMall explains that worker classification has long been a thorny issue. If you go to the IRS website, you will find more than a dozen criteria that employers are supposed to use to determine worker classification. The 13 criteria can essentially be boiled down to six points:

  • How much control the employer exercises over a worker’ tasks
  • The permanency of the relationship between employer and worker
  • How much workers invest in facilities, equipment, etc.
  • The amount of skill, judgment, and initiative required to do the work
  • The ability of the worker in question to generate a profit
  • The extent of integration between employer and worker businesses.

The Department of Labor believes it inappropriate to settle the question for gig workers based solely on counting the number of points that apply to a given situation. They take the six points and combine them with other factors to ultimately decide whether gig workers own their businesses or not. The DOL considers:

  • Work schedule flexibility
  • The ability of providers to work simultaneously for multiple competitors
  • Whether or not VMCs inspect provider service or quality
  • Whether or not VMCs predetermine wages
  • Whether or not VMCs require predetermined training
  • Whether or not providers furnish their own equipment and resources without reimbursement
  • Whether or not there are any conditions that suggest an employer-employee relationship.

As an employer yourself, all of this may be meaningless to you because you are not running what the law considers a VMC. If so, you can forget everything you have read here.

Balancing Federal and State Requirements

If your organization is a VMC, you might eventually be in a situation of having to balance federal guidelines and state laws. VMCs in California are great example. California lawmakers have passed legislation that makes nearly all gig workers standard employees. If nothing changes, the law will go into effect as of the first of the year 2020.

A number of other states are considering similar bills. These include New York, Washington, and Oregon. Assuming California’s law goes into effect and does not significantly hurt the gig industry, other states could follow.

So, why does it matter? Because independent contractors are not covered under most aspects of the Fair Labor Standards Act (FLSA). For example, they do not have to be paid time-and-a-half for overtime hours. Independent contractors also are responsible for paying their own taxes, including a self-employment tax that is equivalent to both portions of the FICA withholding employers and employees are subject to.

Are you a gig worker? If so, the Department of Labor classifies you as an independent contractor. Know that things might change in the future.