DOL casts wider net for misclassified independent contractors

The DOL is continuing in its initiative to address misclassification and make sure there are more employees and less independent contractors in the future. The Wage and Hour Division of the DOL issued Administrator’s Interpretation 2015-1: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors on Wednesday, July 15, 2015.

The basic gist is that the DOL believes that there are a great many misclassified workers who are being denied access to benefits and protections like minimum wage, overtime, family and medical leave, unemployment insurance and safe workplaces. The DOL’s interpretation addresses the definition of “employ” under the FLSA as “to suffer or permit to work” and how this standard was designed to broaden the scope of coverage under the FLSA. The DOL then contends that, in accordance with this standard then, the “economic realities test” and not the “common law control test” should be applied in classifying workers as independent contractors or employees.

The common law control test analyzes whether a worker is an employee based on the control an employer has over the worker. Under the economic realities test, independent contractors are those workers with economic independence who are operating a business of their own, while workers who are economically dependent on the employer, no matter what their skill level, are employees and thus covered by the FLSA. Some of the factors that could be considered in applying this test are (a) is the work an integral part of the employer’s business; (b) does the worker’s managerial skill affect the worker’s opportunity for profit or loss; (c) how does the worker’s relative investment compare to the employer’s investment; (d) does the work performed require special skill and initiative; (e) is the relationship between the worker and the employer permanent or indefinite; and (f) what is the nature and degree of the employer’s control

The point of this shift in focus, of course, is the DOL’s view that most workers are actually employees under the broad definition of employment under the FLSA and a continued effort on its part to address this misclassification issues. Employers are well advised to review their current classifications and to be careful in classifying workers as independent contractors going forward.