DOL Issues Enforcement Guidance on Misclassification of Employees

DOL Issues Enforcement Guidance on Misclassification of Employees

On July 15, the U.S. Department of Labor’s Wage and Hour Division issued guidance on the enforcement of the law prohibiting the misclassification of employees as independent contractors. The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors (Administrator’s Interpretation 2015-1) analyzes how the Fair Labor Standards Act’s definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. The WHD guidance emphasizes that most workers are employees under the FLSA’s broad definitions. It discusses the breadth of the FLSA’s definition of “employ,” as well as provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee. The document includes questions that an employer should consider in determining whether an individual is an employee rather than independent contractor, including:

-Is the work an integral part of the employer’s business?
-Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
-How does the worker’s relative investment compare to the employer’s investment?
-Does the work performed require special skill and initiative?
-Is the relationship between the worker and employer permanent or indefinite?
-What is the nature and degree of the employer’s control?

WHD says the factors should not be analyzed mechanically or in a vacuum and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee). The document also includes several short examples that are specific to the construction industry. Additional guidance on misclassification is available on the WHD’s Web page: Misclassification of Employees as Independent Contractors.

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