On Wednesday, July 14, 2015, the U.S. Department of Labor issued guidance on curbing what they consider misclassification of statutory employees as independent contractors, Administrator's Interpretation 2015-1. While the Administrator’s Interpretation does not have an implementation date, we assume that the new interpretation is going into effect immediately. Other links can be found on the Wage and Hour Division’s web page: Misclassification of Employees as Independent Contractors and Employee or Independent Contractor?
The Wage and Hour Division’s “Administrator’s Interpretation” states that the key question is whether a worker is genuinely in business for him or herself, which makes that worker an independent contractor, or the worker is economically dependent on the employer. If the DOL prediction is true that most independent contractors should be considered employees, it will have a dramatic effect on employers who utilize independent contractors, found to be employees, including compliance with the FLSA (record keeping, child labor, minimum wage and overtime) unemployment compensation and workers’ compensation considerations, tax withholding and Social Security payments, inclusion in a company’s group health insurance plan, and contributions to an ERISA covered retirement plans. If the FLSA’s broader definition of employees is adopted by other governmental agencies such as the EEOC, it could mean that these workers are also covered by the various employment discrimination laws (Title VII of the Civil Rights Act of 1964, Americans with Disabilities Act, Age Discrimination in Employment Act, etc.) and the Family and Medical Leave Act. Also for employers who have unions, they may be covered under the employer's Collective Bargaining Agreement.
The FLSA’s definition of employ is “to suffer or permit to work” and the later developed “economics realities” test provide a broader scope of employment than the common law definition of independent contractor. The economic realities test takes into account six factors:
- Is work an integral part of the employer’s business?
- Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
- How does the worker’s relative investment compare to the employer’s investment?
- Does the work performed require special skill and initiative?
- Is the relationship between the worker and the employer permanent or indefinite?
- What is the nature and degree of the employer’s control?
The “Administrator’s Interpretation” concludes by stating that “In sum, most workers are employees under the FLSA’s broad definitions.”
For those employers who utilize independent contractors, we suggest you seek immediate advice as to whether they truly meet the DOL’s restricted definition of independent contractors. If you have any questions, please contact one of our labor and employment law attorneys or other attorney with whom you normally consult.