Employee or Independent Contractor? Are Your Employees Classified Correctly?
On July 15, 2015, the U.S. Department of Labor (USDOL) Wage and Hour Division (WHD) issued an Administrator’s Interpretation on the application of the Fair Labor Standards Act’s (FLSA) “suffer or permit to work” standard and the misclassification of employees as independent contractors.
WHD Administrator, David Weil, describes the misclassification of workers as a “problematic trend” and WHD continues to bring successful enforcement actions against employers who misclassify workers. While the subject matter of the interpretation is nothing new, it is meant to offer guidance regarding the application of the FLSA and to aid in curtailing misclassification. The WHD is committed to combating misclassification as some employees intentionally misclassify in order to cut costs and avoid compliance with labor laws. The misclassification means that employees are not afforded workplace protections such as minimum wage, overtime compensation, and workers’ compensation.
Determining The Classification
To determine whether a worker is an employee or an independent contractor, Courts look at whether the worker is economically dependent on the employer. The Supreme Court and Circuit Court of Appeals developed an “economic realities” test to determine a worker’s status under the FLSA. While no single factor is determinative and the list of factors is not exclusive, they typically include:
1. The extent to which the work performed is an integral part of the employer’s business;
2. The worker’s opportunity for profit or loss depending on his or her managerial skill;
3. The extent of the relative investments of the employer and the worker;
4. Whether the work performed requires special skills and initiative;
5. The permanency of the relationship; and
6. The degree of control exercised by the employer.
Ultimately, the determination rests on whether the worker is economically dependent on the employer. If the worker is genuinely in business for himself then he is probably in independent contractor, if he is economically dependent on the employer then he is probably an employee.
It does not matter whether the employer has classified the worker as an employee or an independent contractor. The economic dependence factors are guidelines to help determine the correct classification of workers. Proper classification is crucial to afford both employers and workers proper legal protections. If you have questions concerning how to classify your workers or the legal implications of such classifications, please contact the Business Law Division at Shapiro Law Group, PC.
By Anna Shapiro