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Office of Federal Contract Compliance Programs (OFCCP)

Frequently Asked Questions
Employer–Employee Relationship

 


How do I determine which workers are “employees” that must be included in my Affirmative Action Programs (AAP) under Executive Order 11246, as amended, Section 503 of the Rehabilitation Act of 1973 (Section 503), as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), as amended?

When determining which individuals to include in an AAP, a contractor should include all of its employees who worked at that establishment during the AAP’s term (e.g., calendar year or fiscal year).  However, sometimes an individual working at the establishment may be an “independent contractor,” or other non–employee worker, who does not have an employment relationship to the contractor.  If a contractor is not sure whether an individual  working at the establishment is an  “employee,” it  should examine the  individual worker’s relationship to the contractor using  certain, specific factors  derived from a 1992 U.S. Supreme Court decision called Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992).  See Federal Contract Compliance Manual (FCCM), Key Words and Phrases, p. 298 (defining “employee”).

The application of the Darden factors is a fact–specific, case–by–case assessment, not a simple, bright–line test.  If a contractor believes that a worker may not be an employee, the contractor must assess and weigh each of the Darden factors with respect to its relationship with that individual. While no one factor will necessarily be decisive, the factors that indicate the extent to which the contractor controls the manner and means of the individual’s performance of his or her work will typically be most important in the Darden analysis.  See Equal Employment Opportunity Commission (EEOC) Compliance Manual, Section 2, Threshold Issues, Part 2–III, Covered Parties, available at http://www.eeoc.gov/policy/docs/threshold.html#2-III-A-1 (May 12, 2000).


What are the Darden factors?

The Darden factors that should be considered when determining whether an individual has an employment relationship with a contractor are listed below:

  • The contractor’s right to control when, where, and how the individual performs the job:  The degree to which the contractor retains the right to direct and control how and when an individual performs his or her work is a strong indicator of whether an employment relationship exists, regardless of whether the contractor exercises that right.  If the contractor retains substantial control over when, where, and how the individual performs work, that is a strong indicator that the individual is an employee.  However, if the contractor has little control over the manner in which the work is performed, that may indicate that the individual is not an employee.
  • The skill required for the job:  Independent contractors typically have their own methods for doing the work and are hired because of their specialized knowledge and expertise, or because such expertise is not routinely used in the contractor’s business.  However, if the work performed by an individual does not require such specialized skills or is a regular part of the contractor’s normal business, this is an indicator that the individual may have an employment relationship with the contractor.
  • The source of the instrumentalities and tools:  Generally, independent contractors procure and use their own equipment and materials needed to perform the work they are hired to do.  If the contractor furnishes the tools, materials, and equipment for the individual to work, this will tend to show the existence of an employment relationship between the individual and the contractor. 
  • The location of work:  If the individual works at a location that is owned or controlled by the contractor, this may be an indicator that the individual is an employee, particularly if the individual’s work can be performed elsewhere.  However, if the individual retains the discretion to perform the work at another location, this may indicate a non employee status.
  • The duration of the relationship between the parties:  An extended, continuing relationship between the individual and the contractor without a pre-–defined duration may indicate the existence of an employment relationship.  Independent contractors generally do not have such an extended relationship since they usually perform discrete tasks over a pre–determined period of time that is agreed upon by the parties. 
  • Whether the contractor has the right to assign additional projects to the individual:  Independent contractors typically agree to provide very specific services to a company and usually have the freedom to accept or decline additional jobs.  If the contractor has the right to assign additional work to an individual at its discretion, then this may indicate the existence of an employment relationship.
  • The extent of the individual’s discretion over when and how long to work:  If the contractor exercises control over the hours that the individual begins work and the duration of the workday, then this may indicate that an employment relationship exists.  Independent contractors are usually constrained by timeframes for deliverables, but can exercise discretion over when they begin work and how long their workday is within those general constraints.
  • The method of payment:  Independent contractors are generally paid an amount that is agreed upon in advance for performing a particular job.  If an individual is paid a regular salary or is paid by the hour, week, or month, that may indicate the existence of an employment relationship.
  • The contractor’s role in hiring and paying assistants:  Employees generally do not hire and pay for their own assistants.  If the individual has discretion to hire and pay for his or her own assistants without the approval of the contractor, that may indicate that the individual is an independent contractor.
  • Whether the individual’s work is part of the regular business of the contractor:  Employees typically perform jobs that are a regular or routine part of the employer’s business, while independent contractors generally perform specialized work that lies outside of an employer’s normal business.
  • Whether the contractor is in business:  Employees are usually not engaged in their own separate business (or the business of another entity) when performing work for the contractor.  Independent contractors, however, are usually engaged in their own separate business when they perform work for the contractor.
  • The provision of employee benefits to the individual:  Employees typically receive benefits from the contractor, such as health insurance, life insurance, leave, or workers’ compensation, while independent contractors do not normally receive such benefits from the contractor.

How do I apply the Darden factors?

As previously indicated, the application of the Darden factors is a fact–specific, case–by–case assessment, not a simple, bright–line test.  A contractor must assess and weigh each of the Darden factors with respect to its relationship with a worker to determine whether or not that individual is an employee.  While no one factor will necessarily be decisive, the factors that indicate the extent to which the contractor controls the manner and means of the individual’s performance of his or her work will typically be most important in the Darden analysis. 

If, after analyzing all the Darden factors, the contractor determines that the individual is an “independent contractor” and not an employee, it need not include the individual in its AAP.  The contractor should document the analysis it used to come to this conclusion and retain this documentation as an employment record.  OFCCP may conduct its own Darden analysis during a compliance evaluation of the contractor and make the final determination as to whether an individual is properly classified as an “independent contractor” or other nonemployee, giving due consideration to the contractor’s reasoning for its classification decision.


Can you provide an example of a Darden analysis?

Example 1:   Corazon Sanchez is an adjunct professor of mathematics at Federal Contractor College (FCC), which has a million–dollar contract to provide research services to a federal agency.  Ms. Sanchez, who also works full–time for a non–contractor company, was hired to teach various math courses for FCC’s continuing education evening program, and FCC determines which courses Ms. Sanchez will teach and the schedule for each course.  Ms. Sanchez does not teach at FCC every semester as her classes are contingent on sufficient enrollment.  FCC provides Ms. Sanchez with a list of topics that must be covered for each course, but permits her to construct a syllabus based on the topics it provides.  FCC requires Ms. Sanchez to hold office hours once a week, but Ms. Sanchez may determine when those office hours will be.  The courses are held on FCC’s campus, and FCC provides Ms. Sanchez with office space equipped with a computer, printer, and copier for her use.

FCC pays Ms. Sanchez a fixed amount for each course that she teaches and withholds federal and state taxes from her payments.  FCC does not provide Ms. Sanchez with other benefits such as health or life insurance, which it provides to full–time faculty members, and does not permit Ms. Sanchez to hire her own assistants.

Darden analysis:  An employment relationship exists between Ms. Sanchez and FCC, and she should be included as an employee in FCC’s AAP.  FCC determines the course, course topics, and schedule that Ms. Sanchez adheres to, and requires her to hold regular office hours.  Although Ms. Sanchez has some discretion as to how she covers the required topics in her syllabus and when she will hold office hours, FCC directs the content of her work and when that work is to be performed (Factors 1 and 7).  While Ms. Sanchez is hired for her specialized expertise in mathematics (Factor 2), she is performing the work of teaching, which is part of FCC’s routine business (Factor 10).  FCC requires Ms. Sanchez to teach at FCC’s campus and provides her with office space and equipment for her use. (Factors 3 and 4).  Moreover, FCC treats Ms. Sanchez as an employee for tax purposes by withholding federal and state taxes from her payment (Factor 13) and does not allow her to hire her own assistants (Factor 9).

It should be noted that some characteristics of the relationship between Ms. Sanchez and FCC are consistent with a non–employment relationship.  Specifically, Ms. Sanchez works for FCC on a contingent basis based on demand and enrollment, can choose to accept or decline to teach the courses that FCC wishes to offer each semester, (Factors 5 and 6), is paid a flat, per course fee with no insurance benefits (Factors 8 and 12),and retains full–time employment with another company (Factor 11).  However, these characteristics do not outweigh the significant indicia of an employment relationship in FCC’s ability to direct and control how, where, and when Ms. Sanchez performs her duties, and FCC’s treatment of her as an employee for tax purposes.

Example 2:  Martin Lin is a software consultant performing work for Federal Contractor, Inc. (FCI), an office supplies distributor that has a million–dollar federal contract.  Mr. Lin is developing specialized accounting software for FCI to use in tracking purchases and deliveries.  Mr. Lin signed an agreement with FCI prior to starting work that specifies a list of deliverables and the amount FCI will pay him upon completion of each phase of the project.  FCI provides Mr. Lin with office space in FCI’s building and requires him to attend a weekly planning meeting with members of FCI’s management.  However, Mr. Lin has discretion to work offsite when he chooses and does not have to be present at a specified time each day.  FCI allows Mr. Lin to use an office computer when he is present, but Mr. Lin primarily uses his own computer equipment in coding the software he is developing for FCI.  FCI also allows Mr. Lin to participate in work-–life programs available to FCI employees, such as the use of an in–house gym and free shuttle service to the subway station.  However, FCI does not permit Mr. Lin to participate in FCI’s employee health insurance program and does not withhold federal and state taxes from their payments to him. 

Mr. Lin is also developing similar software solutions for two other companies, but manages his time to ensure that project deliverables are provided to FCI in the timeframe FCI required.  Mr. Lin hires his own assistants at his own cost.

Darden analysis:  Mr. Lin is an independent contractor who does not have an employment relationship with FCI and should not be included as an employee in FCI’s AAP.  While FCI provides Mr. Lin with workspace and a computer in its building, requires him to attend a weekly planning meeting, and allows him to participate in employee work–life programs (Factors 3, 4, 7 and 12), these indicia of an employment relationship are far outweighed by those of a non–employment relationship.   Most significantly, Mr. Lin largely retains the right to direct and control his daily work.  Mr. Lin is permitted to work offsite when he chooses to and, aside from requiring him to attend weekly planning meetings, FCI does not direct his daily work schedule (Factors 1, 4 and 7).  FCI measures Mr. Lin’s work by his provision of agreed–upon deliverables of sufficient quality and is largely unconcerned by the process by which those deliverables are developed and may not assign him tasks outside the scope of their specific agreement (Factors 1 and 6).  Additionally, Mr. Lin possesses highly specialized skills in software development that is not part of FCI’s routine business as an office supplies distributor.   In fact, Mr. Lin appears to run a separate business offering those specialized skills to other companies (Factors 2, 10 and 11).  Mr. Lin does not appear to have a continuing relationship with FCI and such relationship will end once the software is developed and in use by FCI, absent another agreement (Factor 5).  If Mr. Lin requires assistants, he will have to hire them himself at his own cost (Factor 9).  Finally, FCI does not pay Mr. Lin with a salary; rather, FCI pays Mr. Lin when he provides agreed–upon deliverables and does not withhold federal and state taxes from such payments (Factors 8, 12 and 13).