The Department of Labor has just issued a new Administrator’s Interpretation to clarify its interpretation of “employee” under the Fair Labor Standards Act. Administrator’s Interpretation 2015-1 is the latest development in the DOL’s ongoing focus on workers misclassified as independent contractors (its “Misclassification Initiative”).
Citing concerns over eligibility for “important workplace protections” like minimum wage, overtime pay, and unemployment insurance, as well as reduced tax revenue, the DOL states broadly that “most workers are employees under the FLSA.”
According to the DOL, a worker is an employee if he or she is economically dependent on the employer, based on a seven-factor “economic realities” test. The DOL says the factors are to be considered in reference to each other as well as the scope of “employment” under the FLSA, which is “the broadest definition that has ever been included in any one act.” The factors include whether the worker’s work is integral to the employer’s business and whether she has an opportunity for profit or loss, separate and apart from her ability to simply work more hours. The DOL cautioned that this economic realities test captures more workers than the control-based tests used in other contexts, which may be more familiar to employers.
By contrast, a worker who is truly “in business for him or herself” under the economic realities test, as articulated by the DOL, is properly classified as an independent contractor. For example, a worker who uses her business skills and initiative to make decisions about the nature and scope of her work may be an independent contractor. Employers cannot, however, rely on internal designations, industry custom, or even federal or state regulatory requirements to support their worker classifications.
In light of this detailed insight into the DOL’s goals and concerns going forward, as well as its focus on the independent contractor classification issue generally, employers should carefully examine their use and classification of workers.