Federal agencies are now coordinating efforts to investigate employers who misclassify workers as independent contractors. This means routine wage & hour audits and employee complaints to the Department of Labor (DOL) are likely to take on broader significance with greater exposure to damage awards and penalties.

“Fissured employment” is the phrase being used.  It refers to the practice of businesses shedding non-core activities like janitorial services or security services while still maintaining tight control over these activities through high standards and monitoring. However, most people working for a company are employees under federal and state statutes.

The distinction between employee and independent contractor is important. Broadly speaking, an independent contractor has autonomy in determining the basic parameters of the relationship; pay rate, how and when they work, the amount of work they take on, for example. Employees, on the other hand, are governed by the employer. Rate of pay, what they do and when they do it, what is and isn’t permitted, performance targets - are all determined by the hiring party.

Employers should avoid excessive control of independent contractors. Generally, an independent contractor should have an agreement with the company who pays them, have their own company, and who are economically independent of your company.  They should have the opportunity to make a profit. 

We suggest you review your operations with HR and an attorney to protect yourself from the governmental collaborations of the DOL and National Labor Relations Board (NLRB)  who have signed a memo of understanding to enforce the Fair Labor Standards Act (FLSA), The Family and Medical Leave Act, and the National Labor Relations Act (NLRA), and crackdown on misclassification of employees.

To learn more about the distinction between employees and independent contractors, read the IRS guidance.