The Department of Labor has clamped down on its definition of “independent contractor,” declaring that most workers are “employees” under the law. Last month, the DOL issued its Administrator’s Interpretation No. 2015-1, analyzing the FLSA’s “economic realities” test used to determine whether a worker is an employee or independent contractor.
According to the DOL, misclassification of employees as independent contractors is a massive and growing problem. According to the DOL, certain benefits such as FMLA leave, minimum wage, overtime pay, unemployment insurance, and workers’ compensation are being wrongfully denied. The Administrative Interpretation, which runs 15 pages in length, opens the door for lawsuits brought by contractors who feel they should be classified as employees under the law. For employers, not only is payment of benefits at issue, but also payment of payroll taxes to the IRS.
The legal test to determine employment status weighs the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer.
No single factor is determinative in analyzing the employment relationship, the DOL says. Employers should take a new look at their independent contractor positions to ensure that workers are properly classified.