The U.S. Department of Labor (DOL) hinted at an answer to the contractor vs. employee debate for "gig economy" workers in a letter to an attorney for a "virtual marketplace company." In the letter, the DOL wrote the workers at the unidentified company classify as independent contractors rather than employees. The letter contradicts previous guidance from the DOL. Under the Obama administration in 2015, the department issued guidance advising that workers who are economically dependent on a business should be considered employees.
The Wage and Hour Division (WHD) of the DOL said it applied its "six-factor balancing test" to make the determination in the specific case of the unidentified company. The test weighs the nature and degree of the potential employer's control, the permanency of the worker's relationship with the potential employer, the amount of worker's investment in facilities, equipment, or helpers, the amount of skill and judgement required for the worker's services, the worker's opportunities for profit or loss, and the extent of integration of the worker's services into the potential employer's business.
"Based on the facts you provide in your letter, it appears that the service providers who use your client's virtual marketplace are independent contractors. Your client provides a referral service. As such, it does not receive services from service providers, but empowers service providers to provide services to end-market-consumers," the DOL's letter states.
As a result, in this specific case, the virtual marketplace company—whose workers clean residences—will not have to offer the federal minimum wage or overtime, or pay a share of Social Security taxes. Generally, the determination from the DOL could apply to companies who "provide a referral system that connects service providers with consumers." This general distinction could impact platforms such as Thumbtack and TaskRabbit, online marketplaces that match freelance labor with local demand, allowing consumers to find help with cleaning, delivery, and handyman work.
While there are not official numbers on the amount of workers in the gig economy, estimates from JPMorgan Chase Institute suggests there are between one million and five million such workers at any time.
