Jul 22, 2015

Employee or Independent Contractor?

The U.S. Department of Labor’s Wage and Hour Division (WHD) issued important new guidance regarding the Fair Labor Standards Act, or FLSA, on July 15, 2015. The FLSA is a far-reaching piece of federal legislation that provides for minimum wage, overtime, and employment standards for employees nationwide. Whether an individual receives the FLSA’s critical protections, however, hinges on if he or she is classified as an employee. Individuals who are considered independent contractors generally do not receive the same protections as employees.

In its latest guidance, the WHD strongly condemned the practice of misclassifying employees as independent contractors, while signaling increased enforcement on this issue. The WHD also reiterated that “the scope of employment under the FLSA is the ‘broadest definition that has ever been included in any one act.’” In short, according to the WHD, most workers will qualify as employees.

Employers who wish to avoid enforcement measures should focus on whether the worker is economically dependent on the employer or is actually in business for him or herself. Courts employ the “economic realities test” to answer that question, which looks to the following factors:

1. Whether the work performed is integral to the employer’s business;
2. The worker’s opportunity to profit depending on his or her managerial skill;
3. The investments of the worker and employer;
4. The permanency of the relationship.
5. The degree of control retained or exercised by the employer.

No one factor controls, and the factors function more as guideposts than a set formula or a checklist. Given this complex analysis and the range of factual situations, employers routinely misclassify workers and unwittingly expose their companies to liability.

The Labor and Employment practice group at Eastburn and Gray, P.C. can assist employers in this critical inquiry, and advise workers who believe they have been wrongly denied the FLSA’s protections by an employer. For further information please contact the Labor and Employment practice group.

Author: Erin N. Kernan

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