A Thin Line: Is Your Worker an Employee or a Freelance Contractor



In a recent document, existing employment law was interpreted by the U.S. Labor Department, stating that businesses should, in the majority of cases, be labeling workers as employees instead of independent contractors.

This 15-page “interpretation” threw many companies into turmoil. What happens if you are employing freelancers and what if you are a freelancer and you want to remain as one? With this document, it made things far more difficult, which is why it’s important you familiarize yourself with the ins and outs of the interpretation to make sure you remain on the right side of the law.

The Problems Many Companies are Facing

FedEx and Uber were just two of the companies that had lawsuits filed against them due to this misclassification of employees. But both of these companies rely on freelancers to help meet demands without having to hire full-time employees that they don’t have work for all of the time.

In order to evade minimum wage laws or paying benefits, some companies will class employees as contractors, even though they are working full-time. However, there are some law-abiding companies who are now struggling due to these new interpretations as their company relies on the hiring of freelance employees, including Uber and FedEx.

It is the insurance, payroll taxes, back wages, etc. that are providing the difference in the two types of employments, as FedEx found out the hard way, having to pay a $228 million settlement due to the misclassification of their workers.

An economic realities test is what the Department of Labor suggests businesses use to determine whether they should classify a worker as an independent contractor or employee. This will evaluate whether the worker is “in business for him or herself” or is “economically dependent” on the company in question.

Are Your Employees “Economically Dependent” on You?

It can be difficult to establish whether an employee is economically dependent on you or not as it will depend on a number of different factors. This includes whether the relationship between you and the worker is indefinite or permanent, whether the work being carried out is integral to your company and what control you have over this employee.

Because of this very fine line between the two, it’s highly recommended that you speak to an attorney like criminallawyer-nj.com when putting together a hiring policy. However, if you do want to hire an independent contractor instead of an employee, there are a number of things to bear in mind.

Firstly, don’t become too reliant on one contractor, even if they are very good at what they do, as this could be interpreted as them being an employee. You should also try to hire a contractor who has a number of other clients so as to reduce the “economically dependent” factor. Also avoid hiring contractors for integral parts of your business because when a worker is helping with an area of the business that is fundamental to the day-to-day running of it, they’re classed as an employee. Finally, be sure to use limited-term contracts and don’t micro-manage your freelancers, e.g. dictating what hours they work or how they dress.


Sebastian Campbell worked in recruitment for many years before setting up his own business online. When he gets the time he enjoys writing articles, sharing his knowledge around the web.

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