Today, the U.S. Department of Labor (“DOL”) issued an Administrator’s Interpretation regarding the misclassification of employees as independent contractors. Having received numerous complaints from workers on this issue over the last several years, the DOL has concluded that most workers are employees under the Fair Labor Standards Act (“FLSA”). The 15-page memorandum emphasizes that proper classification of workers is necessary to ensure that workers receive workplace protections such as minimum wage, overtime compensation and unemployment insurance.
The DOL explained that the key test to determining whether an employment relationship exists is the “economic realities” test, which focuses on whether the worker is truly in business for him or herself to warrant independent contractor status, or if he or she is economically dependent on the employer and therefore an employee. The agency outlined six factors to consider in analyzing this issue: (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; (5) the permanency of the relationship; and (6) the degree of control that the employer has over the worker. The DOL cautioned that no single factor is entitled to particular weight or focus, and these factors should not be analyzed “mechanically or in a vacuum.” Rather, the economic realities test must be applied with the understanding that each factor is just one portion of the broader concept of economic dependence. Through several real world examples of how these factors should be analyzed, the DOL concluded that most workers are employees under federal law. In short, this guidance reinforces the FLSA’s “expansive coverage for workers,” and highlights that a careful, detailed analysis is critical when employers classify their workers.
This Administrator’s Interpretation comes just two weeks after the DOL’s proposed rule to expand federal overtime pay regulations and further emphasizes that the DOL is seeking both to increase the number of workers who may receive overtime and decrease the number of workers that are classified as independent contractors. See more about the DOL’s new proposed rule here.