Department of Labor Offers New Guidelines for Classifying Workers
As the issue of worker classification continues to garner more attention, The U.S. Department of Labor (DOL) has responded with new guidelines for classifying workers as either employees or independent contractors under the federal Fair Labor Standards Act (FSLA).
Those classified as employees are entitled to the protections provided by FSLA including minimum wage, overtime compensation, unemployment insurance and workers’ compensation. Independent contractors are not covered by the FSLA. According to the DOL, Congress intended that the FSLA be interpreted broadly to classify workers as employees and courts have generally followed a liberal interpretation favoring the employee classification.
The DOL has devised a six-part “economic realities” test of the relationship between a worker and employee that should be used when classifying. This multi-factor test focuses on whether the worker is economically dependent on the employer (employee), or in business for him or herself and therefore an independent contractor.
Economic Realities Test
When determining whether a worker is an employee or independent contractor, all of the factors of the “economics realities” test must be considered in each case, and no one factor is determines if a worker is an employee. The six factors or questions in the “economic realities” test include:
1. Is the work an integral part of the employer’s business?
2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
3. How does the worker’s relative investment compare to the employer’s investment
4. Does the work performed require a special skill and initiative?
5. Is the relationship between the worker and the employer permanent or indefinite?
6. What is the nature and degree of the employer’s control?
