‘Most workers are employees,’ says US Department of Labor

Analysis: New guidance clarifies the exceptional, limited nature of independent contractor status

July 15, 2015 6:00PM ET

by E. Tammy Kim @etammykim

The federal Department of Labor has signaled its concern that workers are being unlawfully excluded from key protections on the job. On Wednesday, the agency’s wage-and-hour division released a 15-page document clarifying who should be considered an “independent contractor” versus an “employee.” It was widely read as addressing the gig-based “sharing economy” and sharp anxieties over labor, income inequality and the changing nature of work.

Using concrete examples from nursing, construction, publishing and cleaning, the guidance clarifies that it’s the “economic realities” of one’s work that matter, “not the label an employer gives it” or what’s listed on a 1099 tax form for non-employees. The legal factors seem technical but are fairly commonsensical: Does the worker play a key role in the employer’s business? Is the work entrepreneurial? Does the employer control what she does?

Since the early 20th century, what are generally assumed to be basic workplace rights — a minimum wage, social security, unemployment and workers’ compensation — have depended on having status as an employee. This system arose in tandem with large corporations that hired people for life, sometimes generation after generation. As exemplars of welfare capitalism, firms like Kodak and General Electric paid steady wages, provided time off, health care and pensions, and created a quasi-familial environment for workers.

These days, people hold multiple jobs over a lifetime, often concurrently, a trend that began in the 1970s, according to the Bureau of Labor Statistics. But unlike those who started out 40 years ago, workers today are increasingly hired for short-term, part-time gigs lacking benefits or support. The U.S. Chamber of Commerce, which opposes the Department of Labor guidance, estimates that 10.3 million workers [PDF], or 7.4 percent of the workforce, are bona fide independent contractors. 

Alanda Fewins, a limousine driver in Houston, is, like most of her peers, considered an independent contractor. In her last job, some aspects were more within her control than others. She made her own hours and chose her own routes, but the car she worked in belonged to her “boss,” who took 40 cents of every dollar she earned.

“I drove his car, I [felt like] his employee, but I’ve always been treated as an independent contractor,” she said. This feeling intensified when Uber came to town, thinning out the business for veteran drivers. “My boss said, ‘Go drive here, do this, do that,’ but I was still an independent contractor.”

While promising to transform an outdated taxi industry, the app-based car service Uber has retained a key feature of that model: drivers’ independent-contractor status. Drivers in California, Florida and other states, however, have, with some success, claimed that they are in fact employees entitled to overtime pay and reimbursement for job-related expenses. Misclassification is rampant, according to the AFL-CIO labor federation and state labor-enforcement agencies. Business associations, on the other hand, see independent contracting as essential to the new, flexible economy.

The Department of Labor guidance does not mention any company by name, and steers clear of illustrations from the vehicle-for-hire business. But several examples speak directly to workers like Fewins — allegedly “independent contractors” who are nevertheless screened, trained, paid and placed into jobs by their bosses.

“In sum,” the document states, “most workers are employees.”