Q: I am confused about the new DOL law about 1099s.

A: You mention a therapy practice and provisionally licensed folks. As I understand the laws pertaining to licensed therapists in Texas, a provisionally licensed therapist is required to be supervised by a licensed therapist. A worker who receives a Form 1099 is supposed to be an independent contractor. An independent contractor controls the manner, means, methods, and details of his/her own work without the supervision of his/her hirer. For example, an attorney is a independent contractor of his client, and an electrician is an independent contractor of a homeowner.

I would think that provisionally licensed therapists can't be independent contractors of their supervising therapist regardless of how many hours they work.

A: Whether or not the workers you hired should be classified as employees or independent contractors depends on engaging in a six-factor analysis for each of the workers. The Department of Labor considers the following six factors in determining whether the worker is the employee or the independent contractor: (1) the worker’s opportunity for profit and loss, (2) the extent of relative investment of the worker and the employer, (3) the permanency of the relationship, (4) the degree of control exercised by the employer, (5) whether the work performed is integral to the employer’s business, and (6) the skill and initiative required in performing the work.1

I do not know the specific terms and conditions of the agreement between you and the workers, but please see below for an explanation of each factor the Department of Labor considers in its classification of the workers.

The worker’s opportunity for profit and loss. This factor examines whether the workers can earn profits or suffer losses through their independent effort and decision-making. Relevant facts include whether the worker can negotiate his pay, decide to accept, or decline work, hire his workers, purchase material and equipment, or engage in marketing or advertising to secure more work. If the workers do not have the opportunity for a profit or loss, then this factor suggests that the workers should be classified as employees e.g., part-time employees.2 I do not know the specific terms and conditions of the agreement between you and the workers, and this factor may or may not weigh in favor of classifying the workers as independent contractors.

The extent of relative investment of the worker and the employer. This factor looks at whether the worker makes investments that are capital or entrepreneurial, including increasing the number of clients, reducing costs, extending market reach, or increasing sales. Lack of investment suggests that the workers should be classified as employees.3 I do not know the specific terms and conditions of the agreement between you and the workers, and this factor may or may not weigh in favor of classifying the workers as independent contractors.

The permanency of the relationship. This factor considers the nature and length of the work relationship. Project-based work, where the worker may make a business decision to take on multiple jobs, indicates independent contractor status.4 I do not know the specific terms and conditions of the agreement between you and the workers, and this factor may or may not weigh in favor of classifying the workers as independent contractors.

The degree of control exercised by an employer. This factor looks at the level of control a business has over the performance of the work, like whether a business controls and sets the workers’ scheduling and pay rates, has the right to supervise the work or discipline the workers. More facts that show control indicate the worker’s employee status.5 I do not know the specific terms and conditions of the agreement between you and the workers, and this factor may or may not weigh in favor of classifying the workers as independent contractors.

Work performed is integral to the employer’s business. This factor examines whether the work is critical, necessary, or central to the business. If the work performed by a worker is critical, necessary, or central to your business, then this factor indicates that the worker is an employee.6 I do not know the specific terms and conditions of the agreement between you and the workers, and this factor may or may not weigh in favor of classifying the workers as independent contractors.

A: More factors may or may not weigh in favor of classifying workers as employees rather than independent contractors. If you ultimately determine that the workers have been misclassified, reclassify your workers as employees moving forward, withhold taxes pursuant to applicable laws, and keep appropriate records to show compliance to government agencies.