Much will soon be written about the Worker Misclassification Memo (available here) that was issued on July 15th by the Department of Labor’s Wage and Hour Division. There are serious employee benefit implications that employers may face if workers are misclassified either as independent contractors (rather than as employees) or as exempt employees (rather than hourly, who are eligible for overtime and other protections).
The Misclassification Memo warns that “in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA” and then articulates the test as follows:
The ultimate inquiry under the FLSA is whether the worker is economically dependent on the employer or truly in business for him or herself. If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.
In view of this warning, employers should consider not only how they have classified employees, but also the employee benefit implications whether for anyone who could be reclassified from independent contractor to employee status, or from exempt to hourly status. In each instance, the implications of a mistake may involve claims for minimum wage, overtime pay, unemployment insurance, worker’s compensation coverage, and participation in employee benefit plans. We recently provided a briefing on this for in-house employment counsel, and will be glad to share our presentation, as well as to answer questions.