The U.S. Department of Labor (“DOL”) recently issued new guidelines to assist in determining whether workers are independent contractors or employees for purposes of the Fair Labor Standards Act (the “Act”). These new guidelines appear to create a “presumption of employment” and indicate a fundamental shift at the DOL declaring that most workers are employees under the Act. This shift will result in more protections for workers such as minimum wage, workers’ compensation benefits, overtime pay and unemployment insurance.
A six-part “economic realties” test is used to determine a worker’s status. This includes:
- is the work performed an integral part of the employer’s business?
- does the worker’s managed skill affect his or her opportunity for profit or loss?
- how does the worker’s relative investment compare to the employer’s investment?
- does the worker perform tasks that require special skill or initiative?
- is the worker’s relationship with the employer permanent or indefinite?
- what is the employer’s nature and degree of control on the worker?
No one factor in the “economic realties” test is to be afforded more weight than the others. The new DOL guidelines place more emphasis on the “integral part” factor, and accordingly the more essential the work is to the employer’s business, the more likely the worker is an employee and not an independent contractor. The prior emphasis on the employer’s degree of control of the work performed has been reduced under the guidelines.
The DOL will be increasing its enforcement efforts under the Act. It is important for employers to correct any misclassifications immediately and treat the workers according to the proper classification going forward. A review of worker classification including the examination of any written agreements, would be a precedent more for employers to determine compliance.
For further information or assistance, feel free to contact us at 810-987-4111.