The DOL calls it a virtual marketplace company (VMC). You might know it as the gig-economy.
Either way, the agency just announced some news that changes the way these workers are classified.
For more background, the letter explains more on this idea of a VMC: “Generally, a VMC is an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.”
The DOL recently published an opinion letter which states that some gig-economy workers are not covered by the Fair Labor Standards Act (FLSA). They are to be classified as independent contractors, not regular employees.
This opinion letter differs from previous guidance back in 2015 under former President Barack Obama’s administration. Its view on what was to be considered an independent contractor resulted in most workers being classified as employees.
Here’s why this distinction matters:
Employees are entitled to minimum wage, overtime pay, and other benefits. Independent contractors, who may work for themselves or multiple businesses, are not entitled to such benefits.
In making its determination, the DOL used its six-factor balancing test that considered the following:
- The degree to which employers have control over workers
- The permanency of the worker’s relationship with the employer
- The amount of the worker’s investment in facilities, helpers, or equipment.
- The level of skill, initiative, or judgement required for the work.
- The worker’s potential to earn profit
- The extent of integration of the worker’s services into the employer’s business.
According to the letter, though, the Wage and Hour Division (WHD) does not determine employee status simply by counting factors, “but by weighing these factors in order to answer the ultimate inquiry of whether the worker is ‘engaged in business for himself or herself,’ or is ‘dependent upon the business to which he or she renders service.’”
Based on what’s described in the letter, the DOL found that the service providers are not economically dependent on the hiring company within the meaning of the FLSA. Here’s why:
- They do not impost any duties like strict shifts or large quotas. Instead, there’s flexibility in working conditions and environment.
- Service providers have the right to work simultaneously for competitors to help maximize their profit.
- Hiring companies do not inspect the service provider’s work for quality.
- Hiring companies don’t set a predetermined wage or provide workers with training.
- There’s nothing to suggest an employer-employee relationship.
- Workers must purchase his or her own equipment and resources without reimbursement.
Because of these factors, the DOL feels that independent contractors is the proper classification for these types of workers.
In case you were wondering, here’s what an opinion letter is. According to our partners at ThinkHR, it’s an official, written opinion by the WHD on how a particular law applies in specific circumstances. It’s important to note that it is not binding to courts. And as always, many of these employment laws have state-specific requirements as well so be sure to check there first.
If you’d like to read the full opinion letter, click here.