DOL SAYS “MOST WORKERS ARE EMPLOYEES” UNDER FLSA
Independent contractor. Owner. Partner. Member of a limited liability company. Whatever “label” employers use, the U.S. Department of Labor (“DOL”) has a message for them – most workers are employees under the Fair Labor Standards Act (“FLSA”).
On July 15, the Wage and Hour Division of the DOL issued an Administrator’s Interpretation focusing on misclassification of employees as independent contractors. The DOL reminded employers that Congress rejected the IRS’s “right to control” standard in drafting the FLSA. Instead, the focus is on whether the entity “suffers or permits” an individual to work, and “if, as a matter of economic reality, the individual is dependent on the entity.” The DOL emphasized that the FLSA analysis results in a broader scope of employment than the “control” test, and that “control” is only one factor to consider.
Factors typically considered include: (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. The DOL stated that “[t]he factors should not be applied as a checklist,” and that the “overarching principle” is one of liberal construction of the FLSA to provide broad coverage for workers.
The DOL has particularly focused on industries that cut costs by improperly classifying low-wage workers as independent contractors. Although the DOL’s Administrator’s Interpretation does not have the force of law, it does reflect the DOL’s interpretation of applicable law – and employers should take heed.