New Guidance on “Contractors” Impacts Affiliate Marketers

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Lately there has been a lot of talk regarding the distinction between employees and independent contractors when it comes to services like Uber and Lyft. However, the guidance being handed down could very well impact the way that many affiliates and OPMs are managing their businesses.

New Guidance on Employees Versus Contractors

On July 15, 2015, Administrator David Weil issued a Department of Labor’s (DOL) Administrator’s Interpretation of the Fair Labor Standards Act (FLSA). The 15 page document speaks specifically to the misclassification of employees as independent contractors. The main concern of the DOL is that “some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.”

The DOL has historically defined “employ” as “to suffer or permit to work” and uses a more recently adopted “economic realities test.” That test uses the following factors, which are analyzed against each other with no single one being determinative.

(A) the extent to which the work performed is an integral part of the employer’s business;
(B) the worker’s opportunity for profit or loss depending on his or her managerial skill;
(C) the extent of the relative investments of the employer and the worker;
(D) whether the work performed requires special skills and initiative;
(E) the permanency of the relationship; and
(F) the degree of control exercised or retained by the employer.

One of the most important paragraphs in the document explains that the label that the employer uses or the agreement between the employer and the worker are NOT determinative. It’s not enough for the employer and the employee to just agree as part of their contract or negotiation that the worker is an independent contractor. The factors in the economic realities test will still prevail.

Another paragraph that is particularly important in our industry describes the element of “degree of control.” Simply having workers who are free to work from home and set their own hours with little supervision does NOT make them independent contractors. The control factor has to be weighed against the other factors.

The document concludes by blatantly summarizing that “most workers are employees under the FLSA’s broad definitions.”

How It Impacts Affiliate Marketing

It’s no secret that the many people in our industry work in a consulting or contract capacity quite frequently. There are quite a few instances that would actually fall under the “independent contractor” status such as guest writers, graphic designers, programmers, and social media or SEO experts.

However, those lines might very easily be crossed if the person doing the work is either working exclusively for one company, is performing work that is integral to the company, or the company is relationship has the signs of permanency (perhaps the giving of executive titles or listing the workers on the employer website).

What’s the difference how you classify workers if both of you are fine with it? Apparently quite a bit. There are major differences in the assessment and collection of taxes, unemployment, overtime policies, and minimum wages.

Right now it does not look like online marketing is being closely scrutinized for labor violations of this type, but as our industry continues to grow, it’s likely that we will become a bigger part of the discussion.

If you are employing people in any way, it’s a good idea to evaluate your relationships and determine whether people you consider to be contractors might actually be employees.