Misclassification of employees as independent contractors can get employers in plenty of hot water under the Fair Labor Standards Act for failing to pay overtime, workers compensation and the minimum wage.  A recent memorandum from the DOL attempts to clarify this issue.

The Administrator’s Interpretation No. 2015-1 addresses the FLSA’s definition of “employ” under 29 U.S.C. 203.   Helpfully – and perhaps a little tongue in cheek – the DOL concludes that most workers are employees under the FLSA’s broad definitions.  The Administrator instructs that the “economic realities” test is to be used in the determination – a test widely used by courts.  The following factors are to be considered: (1) Whether the work an integral part of the employer’s business; (2) Whether the worker’s managerial skill affects the worker’s opportunity for profit or loss; (3) How the worker’s relative investment compares with the employer’s investment; (4) Whether the work performed requires special skill and initiative; and (5) Whether the relationship between the worker and the employee is permanent or indefinite.

The bottom line is whether the worker is economically dependent on the employer or truly in business for himself or herself. If the worker is economically dependent on the employer, then he or she is an employee.  If the worker is in business for himself or herself, the worker is an independent contractor.

Even an inadvertent misclassification of a worker can  land an employer in hot water. Call us before you classify a new employee. We’ll help you avoid fines and penalties. If you haven’t reviewed your classification protocols in a while, now’s the time. Let us conduct an audit to confirm that your classifications comply with current law.