Employment Relationships Defined in the Gig Economy

With accessibility and opportunities readily available at our fingertips, the freelance economy has grown rapidly since 2010. Companies like Uber, Airbnb, TaskRabbit and Postmates, to name a few, have given gig economy workers a chance to supplement their paychecks from their full-time jobs. However, the Department of Labor (DOL) noted in their opinion letter that gig-economy workers aren’t considered employees. DOL findings concluded that workers who use a technology platform or “virtual marketplace” to connect with consumers are classified as independent contractors rather than employees of that technology platform. This distinction means the independent contractors are not entitled to minimum wage, overtime pay, medical, or any other benefits, like full time employees are given.

Conclusions like this from the DOL have given companies more flexibility to hold nontraditional relationships with their ‘’workers’’. This grants companies the freedom to engage their workers outside the traditional employee models which have been in place since the Baby Boomer Generation. As future generations such as Gen Z begin to fill in the workforce, this could have a major effect on our economy and how businesses are structured moving forward.

The DOL applied longtime independent contractor analysis when considering whether a worker is economically dependent on the hiring business. To determine economic dependence, the DOL considers six factors:

1. The nature and degree of the potential employer’s control.
2. The permanency of the worker’s relationship with the hiring business.
3. The amount of the worker’s investment in facilities, equipment or helpers.
4. The amount of skill, initiative, judgment or foresight required for the worker’s services.
5. The worker’s opportunities for profit or loss.
6. The extent that the worker’s services are integrated into the potential employer’s business.

The DOL found additional factors may also be measured to determine an employee status for a company. These additional factors will help supplement the six factors above, which determine whether the worker is ‘engaged in business for himself or herself’ or ‘is dependent upon the business to which he or she renders service’.

These new pronouncements from DOL are helpful for any industry that relies on independent contractors. The bottom line of the analysis remains the issue of control. While the DOL has said it is ok to have some oversight of contractors, having too many rules and policies governing your independent contractors could essentially be seen as a control over the contractor’s work conditions or environment. This may cause Fair Labor Standards Act (FLSA) issues for an employer and lead to fines and/or a requirement to treat that contractor as an employee. With the way the economy and workforce are shifting, employers should use this as guidance when hiring independent contractors.