Why Labor Investigations Target Independent Contractors

Today I want to touch on a type of investigation that affects healthcare providers of all types: U.S. Department of Labor investigations, and specifically those that classify workers as independent contractors versus employees.

Why does it matter?

Because now the topic is coming under scrutiny.

The Department of Labor, which has seen an increase in its ability to bring enforcement actions in recent years, has flagged the healthcare industry as a prime target for investigation.

According to the Department of Labor, in the 2022 fiscal year, the agency’s Wage and Hour Division recovered more than $32.5 million in back wages, specifically for workers in healthcare. That’s more than its recovery for workers in agriculture, retail, food services, or business services, and only just barely less than the recovery in the construction industry.

Why has the Department of Labor targeted healthcare facilities for investigations into employee misclassification, sometimes claiming millions of dollars in unpaid overtime?

The issue is that independent contractors are effectively considered self-employed, so they aren’t subject to federal minimum wage and overtime requirements. During COVID-19, we all know there was a huge demand for healthcare workers, and a lot of facilities turned to contract nursing and other contracted positions to provide necessary healthcare during the pandemic. Now, as we are transitioning out of the public health emergency (PHE), healthcare employers should pay close attention to how their workers are classified.

Now, there’s no black-and-white answer as to whether an individual should be classified as an employee or an independent contractor, but here are six things to consider:

1. How much control the person has over how the work is performed;
2. The person’s opportunity for profit or loss, depending upon his or her managerial skill – for example, whether they earn a set salary, or they control how much money they can make;
3. The relative degree of investment in equipment or materials that are required for their tasks;
4. Whether the services provided by the person require special skill;
5. The degree of permanency and duration of the working relationship; and
6. The extent to which the services are an integral part of the healthcare facility’s business.

All of these factors are important, but I want to focus first on degree of permanency. Again, during the PHE, providers were relying on a lot of short-term contracts just to keep up with the demand for services, and in a lot of cases, those short-term contracts got renewed multiple times. I want to encourage providers to take inventory of their independent contractor arrangements, keeping these six factors in mind, and consider whether they may need to reassess any current worker classifications. Employers should correct any misclassifications they find, since enforcement can be retroactive, and they may be responsible for back pay.

If someone is misclassified, the biggest risk of liability usually arises from state or federal labor investigations and enforcement actions. However, individuals themselves who think they have been misclassified (and, for instance, should be owed overtime) often have the independent ability to bring a lawsuit, either in state or federal court. These violations of wage and hour laws are often really costly, and most statutes mandate double or triple damages for violations and mandatory payments of a plaintiff’s attorney’s fees.

So, the takeaway is to pay attention to how providers are classified – and if you can, conduct an internal audit and fix any past misclassifications. And, of course, be prepared for increased audits by the Department of Labor.