DOL Issues New Guidance on “Employee vs. Independent Contractor” Misclassification

On Wednesday, July 15, 2015, the U.S. Department of Labor (DOL) issued new guidance targeting employer misclassification of employees as independent contractors. Authored by David Weil, the head of the DOL’s Wage and Hour Division, the 15-page guidance (termed an “administrator’s interpretation”) states that, according to the DOL, “most workers” in the United States qualify as “employees” under the Fair Labor Standards Act (FLSA).

Whereas a worker genuinely in business for himself or herself is properly classified as an independent contractor, a worker that is economically dependent on the employer is an employee covered by the FLSA. In making this determination, the DOL will consider six “economic realities factors,” in the context of the FLSA’s broad definition of “employ,” meaning “to suffer or permit to work.”The economic realities factors include:

  • The extent to which the work performed is an integral part of the employer’s business;
  • The worker’s opportunity for profit or loss depending on his or her managerial skill;
  • The extent of the relative investments of the employer and the worker;
  • Whether the work performed requires special skills and initiative;
  • The permanency of the relationship; and
  • The degree of control exercised or retained by the employer.

Notably, no one factor is entitled to greater weight than another and the factors should not be analyzed mechanically or in a vacuum. Rather, the factors are a road map for determining economic dependence or independence.

A determination that a worker was misclassified as an independent contractor could have significant economic impact on an employer. For instance, the employer might be liable for minimum wage, overtime compensation, employment withholding taxes, unemployment insurance, providing health insurance coverage, and worker’s compensation. In addition, the worker might be entitled to statutory workplace protections, such as state and federal civil rights law prohibiting workplace discrimination, harassment and retaliation.

As previously reported just last month, the DOL announced a proposed rule that would broaden federal overtime pay regulations and double the minimum salary threshold required to qualify for a “while collar” exemption under the FLSA. The proposed regulations were published in the Federal Register on July 6, 2015.

Given the recent developments at the DOL, employers should revisit how they are classifying their workers. Misclassification actions, by the DOL and employees, will only continue and are likely to increase in the near future. Addressing the classification of workers now may help avoid costly and protracted legal action in the future. Please call us today at (877) 356-6175 for assistance or complete the form below.

Click here to read the DOL’s entire guidance document.

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