DOL issues guidance concerning misclassification of employees and independent contractors.

• Author: Koppel, Michael D.
• Position: Dept. of Labor

In July, the U.S. Department of Labor's (DOL's) Wage and Hour Division issued Administrator's Interpretation No. 2015-1, which addresses issues arising from the misclassification of employees as independent contractors. The interpretation addresses the application of the Fair Labor Standards Act (FLSA) to employees who are misclassified as independent contractors. Such a misclassification may deny employees significant workplace protections, such as minimum wages, overtime compensation, unemployment insurance, and workers' compensation, and it lowers tax revenues. The DOL has identified misclassification as one of its top three issues.

In response to continual complaints it receives relating to the improper classification of workers as independent contractors, the Wage and Hour Division has provided additional guidance intended to clarify the standards used to determine whether a worker is an employee or an independent contractor under the FLSA.

Administrator's Interpretation No. 2015-1 provides that the FLSA broadly defines the term "employ" as "to suffer or permit to work" and concludes that most workers are employees under the FLSAs broad definition. The interpretation discusses the multifactored "economic realities" analysis applied by the courts in differentiating employees from independent contractors under the FLSA. This analysis centers on determining whether the worker is economically dependent on an employer or is in business for himself or herself. If the worker is economically dependent on an employer, he or she is "suffered or permitted to work" by the employer and therefore would be considered an employee. The economic realities factors include:

Is the work an integral part of the employer's business? If the work performed by the worker is integrated into an employer's business, the worker is more likely economically dependent on the employer and therefore an employee. Work can be considered integral to an employer's business even if it is performed away from the employer's premises.

Does the worker's managerial skill affect the worker's opportunity for profit or loss? The primary focus with respect to this factor is whether a worker's managerial skill can affect his or her opportunity for profit and loss, such as garnering future business or reducing the opportunity for future work. The possibility of experiencing a loss or profit is typical of workers in business for themselves. A worker's ability to perform more work, or...