The Department of Labor (DOL) is taking a much more business-friendly approach to independent contractors under President Donald Trump. After rescinding the prior administration’s 2015 guidance, the DOL is now shedding light on its new approach.
The DOL recently issued Field Assistance Bulletin No. 2018-4, which is intended to provide guidance to Wage & Hour Division (WHD) field investigators regarding how to determine whether home care, nurse, or caregiver registries are employers under the Fair Labor Standards Act (FLSA). While the guidance is limited to the healthcare industry, it confirms that the DOL plans to take a less rigid approach to worker misclassification.
DOL Rescinds Obama Era Guidance
In July 2015, the DOL published guidance on the increasing number of misclassified workers and broadly concluded in that “most workers are employees under the FLSA’s broad definitions.” The agency further advised that the multi-factor “economic realities” test, which is used to determine whether a worker is appropriately classified as an independent contractor for purposes of the FLSA, should be “guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad.”
In 2017, the DOL rescinded the Obama era guidance. However, it did not offer any replacement guidance. The DOL press release stated only that the “[removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act [FLSA] and the Migrant and Seasonal Agricultural Worker Protection Act.”
DOL Bulletin for Healthcare Industry
In Field Assistance Bulletin No. 2018-4, the DOL provides direction for certain businesses in the healthcare industry, specifically home care, nurse, or caregiver registries. A registry is an entity that typically matches people who need caregiving services with caregivers who provide the services, such as nurses, home health aides, and personal care attendants.
According to DOL Acting Administrator Bryan Jarrett, "a registry that simply facilitates matches between clients and caregivers—even if the registry also provides certain other services, such as payroll —is not an employer under the DOL." Conversely, a registry that controls the terms and conditions of the caregiver’s employment activities may be an employer of the caregiver and therefore subject to the requirements of the FLSA. To provide greater clarity on this distinction, the DOL bulletin provides specific examples of common registry business practices, which may, when the totality of factors is analyzed, establish the existence of an employment relationship under the FLSA. They include:
- Background and Reference Checks: A registry’s performance of such basic or legally required background checks by itself does not indicate that the registry is an employer of the caregiver. However, if a registry uses subjective criteria to select the caregiver, it may indicate the registry is the caregiver’s employer.
- Hiring and Firing: If a registry informs its client that a potential caregiver meets the client’s threshold parameters and preferences, and then introduces the two, then the registry likely is not an employer of the caregiver. On the other hand, a registry’s exercise of control over hiring or firing decisions indicates that the registry is an employer of the caregiver.
- Scheduling and Assigning Work: A registry commonly facilitates initial communication between the caregiver and the client, and then those two parties independently determine the work schedules and assignments. A registry’s lack of control over work schedules and assignments may indicate that a registry is not the caregiver’s employer. Conversely, a registry’s exercise of control over the caregiver’s work schedules and assignments may indicate that the registry is an employer of the caregiver.
- Controlling the Caregiver’s Work: While the registry may seek information concerning the types of care the client requires for matching purposes, the registry may not instruct the caregiver on how to care for clients, as control over the caregiver services indicates that the registry is an employer of the caregiver. Examples of such control include setting policies that require a caregiver to provide services in a particular manner; requiring a caregiver to accept jobs with specific clients; visiting the client’s home to monitor a caregiver’s behavior; conducting performance evaluations of the caregiver; setting policies for a caregiver’s time off from work; requiring a caregiver to call only the registry, instead of the client, if the caregiver will be late or miss a shift; and disciplining a caregiver for his or her performance.
- Setting the Pay Rate: A registry typically does not determine a caregiver’s rate of pay, but rather the client negotiates the rate of pay directly with the caregiver. Alternatively, Medicaid or another government program may determine the rate of pay. In either case, the registry is not acting as an employer. Alternatively, a registry’s decision to effectively set a caregiver’s rate of pay without the caregiver making the ultimate determination indicates that the registry is acting as the caregiver’s employer.
- Continuous Payments for Caregiving Services: When a registry perform and charge for administrative functions, such as payroll and producing tax documents, it is not acting as the caregiver’s employer. However, if the registry charges based on the number of hours the caregiver works, this indicates an ongoing interest in the employment relationship. Accordingly, it also suggests that the registry is the caregiver’s employer.
- Paying Wages: If, when providing payroll services, the client provides the funds directly or via an escrow account, the registry’s performance of such services does not indicate that the registry is the caregiver’s employer. A registry’s direct payment of its own funds to the caregiver, however, may indicate that the registry is the caregiver’s employer.
- Tracking Hours: A registry may collect time sheets from caregivers or offer an electronic time verification system. A registry may also require the correct completion and submission of certain time sheets for purposes of payroll processing. These activities do not indicate that the registry is the caregiver’s employer—as long as the client (not the registry) is the one actually verifying and adjusting the timekeeping information for accuracy.
- Purchasing Equipment and Supplies: Unlike investments in office space or payroll systems, investments in the tools necessary for caregivers to perform their service by the registry may indicate an employment relationship.
- Receiving EINs or 1099s: Referring to a caregiver an “independent contractor” and issuing an IRS 1099 form does not preclude the caregiver from being classified as an employee under the FLSA.
In concluding the Bulletin, the DOL further advised: “WHD will consider the totality of the circumstances to evaluate whether an employment relationship exists between a registry and a caregiver. Because the analysis does not depend on any single factor, and because caregiver registries operate in a variety of ways, WHD will evaluate all factors (including the practices discussed above) to reach appropriate conclusions in each case.”
Key Takeaway for Employers
The DOL’s return to considering the “totality of the circumstances” when conducting an independent contractor analysis is good news for employers in all industries. Nonetheless, employers should expect that state regulators and private litigants will continue to bring employment suits based on worker misclassification.
If you have any questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Ramon Rivera, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.