What work are my Independent Contractors allowed to complete?

This is a big guideline that is often misunderstood. Independent contractors cannot provide integral services related to the business.

Have you ever thought about the nature of the work your workers produce?

We often think of employees by their place in the company such as entry level, middle manager, C-suite, etc. Or we may think about the distinctions between revenue generating workers and administrative employees.

They are considered to be providing a different work product – the nature of the work they do differs by their role and assignments. But there is more to the work that a worker produces for your company than these categories.

There are also services that are integral to the business and those that are not.

If you are sitting there with your head tilted to one side, let me assure you that you are not alone.

We are wrapping up our series around when a worker qualifies as an independent contractor vs when they must be hired as an employee. There are regulatory parameters around this definition of employment – oh so many regulations.

In the last few articles, I’ve told you about financial  control and behavioral control, and relationship of the parties. These are three of the guidelines around what is known as worker classification.

Today we are going to cover a parameter known as “nature of work”

The Nature of Work guideline is an important and useful distinction between when a worker should be an employee and when they can be hired as an Independent Contractor. This classification guideline comes directly from the lovely people down at the Department of Labor.

Yet, it is very… and I mean VERY, commonly misunderstood.

So, what is the nature of work?

The nature of work refers to the type of services performed by a worker in relation to the primary services offered by your business.

To help put a bit of color on this point, let’s bring back our trusty pal, Barbara Business-Owner. If you’ve been reading this for a while, you know that Barbara owns a law firm in her hometown.

In this case, Barbara’s primary services are law related.

As a result, she cannot hire an independent contractor who also offers law services.

For example, a lawyer cannot serve as an independent contractor in Barbara’s practice if they are providing legal services to Barbara’s clients.

This is because an independent contractor must not provide services integral or central to the primary services offered by a business.

 

So, it is extremely important to keep this distinction in mind when hiring workers.

Let me ask you something.

Would you hire a freelancer to build up your website?

“Yes, if they were an expert web designer”

Exactly…

Independent contractors are experts in their field so they should be appropriately hired for their expertise.

For example, Frank Freelancer is an experienced web designer. So, when Barbara Business-Owner hired Frank to build her website, he was able to build her online presence. This enabled her to offer more legal consulting services, increasing her revenue.

And as an expert, Frank offers specialized services to other businesses.

Think of it this way–

In Barbara’s hometown, if someone needed legal help, who would they go to?

Yes, that’s right…Barbara Business-Owner. She will often be hired due to her legal expertise.

Why does all this matter?

Nature of work guidelines serve to ensure that freelancers are hired for their skills–not just to masquerade as a freelancer while working as an employee.

In other words, the guidelines force workers to bear the burden of their expenses while still confining them to the limitations that employees face.

But hold your horses buckaroo…

I’m not naming any names or pointing any fingers.

All I’m saying is that I’ve heard a tale or two of some businesses that have taken advantage of workers in the past.

Essentially, these businesses purposefully note their employees as independent contractors. This is so they can reap all the benefits of hiring employees without providing any of the employee benefits.

Understanding the nature of work is a win-win situation for you and your workers.

They don’t get exploited – and this is what our pals at the Department of Labor are most concerned about.

And you don’t get audited – and that is what we are most concerned about!

What happens if I violate the ‘Nature of Work’?

Namely, you’d be violating labor laws. So, prepare for an audit.

Let’s say Barbara was to hire Frank Freelancer– a lawyer. The Department of Labor would cross their arms, tilt their heads, and may even let out a tut of disapproval.

Why?

Well, because employers generally consider legal professionals who are involved in ongoing and integral work as employees…not as independent contractors.

This is because of the essential nature of legal services in relation to Barbara Business-Owner’s law firm.

So, the lovely people down at the Department of Labor would consider Barbara hiring a lawyer as an independent contractor as a misclassification.

Closing thoughts

I have good news. It’s not all doom and gloom.

There is a light at the end of the tunnel…

By understanding the nature of work, you can appropriately assess whether your workers should be hired as independent contractors or employees.

As long as your independent contractor is not providing services that are integral to the service that you provide, then you’re on the right side of the Department of Labor.

And if you do need to leverage the flexibility for a flexible worker, as independent contractors are, for services that are integral to the services of your business then let’s talk. We would love to help guide you through all this!

Trust me, I know how overwhelming this may seem–I’ve just bombarded you with a huge wave of information!

At ClearPath, we offer 1 to 1 business consultations that act to help you ride the wave of information and streamline your business operations without any of the risks.

During our consultation, I will take a look into your relationship with your workers and determine if you need to make any changes.

Contact us today to stay on the right side of labor regulations.

 

ClearPath is a leading Human Resources Outsourcing company focusing on assisting employers to leverage the independent contractor labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements. Contact us today to make an appointment.

 

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.