The United States Department of Labor provided further guidance earlier this month on how it interprets the tests it uses to determine whether a worker should be classified as either an employee or independent contractor. While in some circumstances it may be appropriate to classify a worker as an independent contractor, to do this only as a means to decrease operating costs is illegal and harms not only the worker but also the government. For example, when an employer wrongly classifies an employee as an independent contractor, the worker does not receive common workplace protections such as minimum wage, overtime, workers’ compensation, or unemployment insurance. In addition, the government also loses out on tax revenue.
The DOL will look closely at the “economic realities” of the working relationship to determine whether an employer-employee relationship exists rather than what any written agreement states to the contrary. Are the “economic realities” such that the worker is economically dependent on the employer or in business for him or herself? The economic realities test typically includes the following factors: (a) the extent to which the work performed is an integral part of the employer’s business; (b) the worker’s opportunity for profit or loss depending on his or her managerial skill; (c) the extent of the relative investments of the employer and the worker; (d) whether the work performed requires special skills and initiative; (e) the permanency of the relationship; and (f) the degree of control exercised or retained by the employer. Click here for the DOL memo.
My take away after reading the Administrator’s Interpretation is that the DOL, as its starting point, considers most workers to be employees under the Fair Labor Standards Act. Click here for a post earlier this year where I informed you that the New Jersey Supreme Court ruled the same way. Against the DOL’s new crusade, combined with recent decisions by the Courts, employers would be wise to review all independent contractor relationships anew. The consequences for being wrong are high and include legal fees, back taxes, penalties and back wages which may include overtime. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.
This entry is presented for informational purposes only and does not constitute legal advice.