The U.S. Labor Department is warning companies not to misclassify some workers as independent contractors instead of full-fledged employees. Experts say healthcare companies need to make sure their employment practices are in compliance.
David Weil, the department’s administrator, issued a guidance document this week emphasizing to employers that although independent contractors are widely used, “most workers are employees” under the Fair Labor Standards Act, and therefore deserve protections such as a minimum wage, overtime compensation, unemployment insurance and workers’ compensation. Workers’ compensation coverage can be particularly important to healthcare workers, who suffer from one of the highest rates of musculoskeletal injuries among all U.S. industries.
This move comes after the Labor Department recently proposed a new rule that would make up to 5 million more people eligible for overtime pay, which could affect some healthcare workers who are paid on an hourly basis. The latest document is just guidance, not a new rule, said Maria Greco Danaher, a partner specializing in employment law at Ogletree Deakins in Pittsburgh, but it reminds employers that they need to evaluate the status of their workers.
“It’s a red flag to say, if you haven’t looked at this (regulation) lately, it’s time to review it,” Danaher said. “And if you’ve looked at it and have dismissed it, it’s time to raise this review.”
The department outlines six factors that should guide employers’ understanding of whether a worker should be classified as an employee. Taken together, the factors are intended to indicate whether a worker is economically dependent on the company in question. For example, if a worker performs work that is integral to the company’s business, they’re more likely to be an employee, not a contractor, and they should also be considered an employee if their work is permanent rather than intermittent or indefinite.
The guidance also asks employers to consider whether the employee’s ability to manage himself affects how much money he makes. For example, if a home health worker is able to independently schedule his own work, solicit additional work and promote his own services, then he’s more likely to be classified as an independent contractor, as opposed to a worker who takes assignments determined only by his company.
If the worker is investing a significant amount of money or resources into his or her work, then he’s likely to be an independent contractor. But if a company is providing the employee with most of the tools and resources needed to complete his job, he’s more likely to be an employee, the Labor Department says.
The guidance also advises employers to consider whether the worker is providing a special skill and is offering that skill independently to the employer. Some healthcare companies might consider using independent contractors for specialized procedures, lab tests or technology needs where a provider isn’t needed on a regular basis, said Adam Abrahms, a healthcare and labor attorney with Epstein Becker & Green in Los Angeles.
But in many cases, those specialized contracted providers will come from a staffing agency, Abrahms said, which would in turn employ the workers as full-fledged employees. In that case, it’s important for healthcare organizations to protect themselves with an indemnification clause in the vendor contract, in case the contractor sues both companies regarding employment issues, he said.
Lastly, the Labor Department notes that companies need to consider the amount of control they exert over their workers. If an employer is setting a worker’s hours, wage ranges and implementing other parameters, they’re more likely to be considered an employee. According to one example provided by the Labor Department, a nurse who is matched with clients via a registry that limits how much work the nurse can take on should be considered an employee. A nurse who only uses the registry to find clients, however, is a contractor.
More and more doctors are directly employed by health systems rather than independent contractors. However, physicians are exempt from the Fair Labor Standards Act, so the latest guidance doesn’t apply to them, said John Thompson, a partner specializing in wage and hour law at Fisher & Phillips in Atlanta.
Employers that don’t heed the Labor Department’s guidance could face investigations and lawsuits from the department or their employees.Thompson said recent media attention to the rule could encourage more employees to sue regarding their employment status.
Thompson added, however, that the document does not establish new requirements but rather is intended to remind employers to be aware of their responsibilities for their workers. “What it mainly does is draw together a number of lines of thought that many at the Labor Department and many courts have been applying.”