The Wage and Hour Division of the U.S. Department of Labor (DOL) was busy this past summer. In particular, it addressed the issue of the classification of workers as independent contractors via a formal interpretation memo. The memo can be viewed in its entirety on the DOL’s website.
The DOL’s memo essentially expands the applicable criteria for determining whether a worker is an independent contractor or an employee entitled to the legal protections of the FLSA, including minimum wage, overtime compensation, unemployment compensation and workers’ compensation. The memo states that employees often misclassify employees as independent contractors to cut costs and avoid complying with labor laws such as the FLSA.
The DOL’s memo clarifies that the “economic realities” of the relationship between the employer and the worker must be examined in order to properly classify the worker. Under the economic realities test, the degree to which the employer controls the worker is just a single factor to be considered in the context of a broader inquiry into the economic relationship between the parties. Other relevant factors include:
- (a) the extent to which the work preformed is an integral part of the employer’s business,
- (b) the worker’s opportunity for profit or loss depending on his or her managerial skill,
- (c) the extent of the relative investments of the employer and the worker,
- (d) whether the work performed requires special skills and initiative, and
- (e) the permanency of the relationship.
The DOL emphasizes that no single factor is determinative. Rather:
“[t]he factors should be considered in totality to determine whether a worker is economically dependent on the employer, and thus an employee.”
A worker who is in business for him or herself, and is thus economically independent from the employer, is an independent contractor. Significantly, the DOL states that these factors should be “liberally construed” to provide broad coverage and protection for workers. Moreover, how the employer decides to label the relationship is not relevant to determining the worker’s classification.
The DOL ultimately concludes that “most workers are employees under the FLSA’s broad definitions.”
If you have any questions about worker classification, contact my office.