HR Alert: DOL Changes Course on 1099s

The DOL issued an opinion letter on Monday, April 29, proving to be an 'about face' of sorts and siding with an employer on the issue of 1099/independent contract designation for a group of workers. This opinion addressed the service providers for a  virtual marketplace company (VMC), but the DOL’s language was expansive enough to provide some insight as to the Department’s flexible approach in what they call the 'gig economy'.

The FLSA uses a multi-factor test for evaluating whether an individual working for a company is a valid independent contractor or rather an ‘employee’. The DOL 7 factor test includes the examination of:

  1. The extent to which the services rendered are an integral part of the principal's business.

  2. The permanency of the relationship.

  3. The amount of the alleged contractor's investment in facilities and equipment.

  4. The nature and degree of control by the principal.

  5. The alleged contractor's opportunities for profit and loss.

  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.

  7. The degree of independent business organization and operation.

The federal approach is important, but individual states have their own tests for this determination as well. Employers should still approach 1099 status carefully, as prior opinions have favored 'employee' status over independent contractor in similar circumstances.