Labor Department Classifies Gig Workers As Contractors

The Labor Department has classified workers for an unnamed gig company as contractors rather than employees. The decision was disclosed in an “opinion letter,” meaning it applies only to the company that sought it. The letter came from the department’s Wage and Hour Division in response to an inquiry from a lawyer for an online company seeking clarification on the law.

The letter isn’t meant to be viewed as law, but it does indicate how the Labor Department intends to interpret existing rules and regulations. It was made public to clarify the situation for similar businesses. The name of the business was redacted from the letter, in line with a longstanding policy of the department not to disclose the names of companies receiving such letters.

According to the Labor Department, the decision was based on the extent to which the prospective employer controls how the worker does his or her job. In this case, the agency found that the workers had the freedom to choose when, where and how long they worked; that the workers provided their own equipment; and that the company did not have a mandatory training program to tell the workers how to do their jobs. Those facts led to the conclusion that the workers should be classified as contractors.

The finding is significant for the company in question. Workers classified as independent contractors are mostly exempted from the Fair Labor Standards Act. This means that the unnamed company will not have to offer workers the federal minimum wage or overtime, or pay a share of Social Security taxes.

As gig companies have assumed a more prominent role in the economy over the past decade, they have become aggressive in seeking legislation to ensure that their workers are classified as contractors. The classification could be worth billions of dollars to these companies. According to industry officials, requiring such companies to classify their workers as employees would increase their labor costs by as much as 30 percent.