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U.S. DOL Issues New Guidelines re: Independent Contractors

By Thomas M Lee

On July 15, 2015, the U.S. Department of Labor's Wage and Hour Division (WHD) issued Administrators Interpretation 2015-1: "Application of the Fair Labor Standards Act's 'Suffer or Permit' Standard in the Identification of Employees Who Are Misclassified as Independent Contractors."

The Interpretation's stated goal is to provide "guidance regarding the application of the standards for determining who is an employee under the Fair Labor Standards Act [FLSA] ... to the regulated community in classifying workers and ultimately in curtailing misclassification."
In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself. A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA. The application of the economic realities factors must be consistent with the broad “suffer or permit to work” standard of the FLSA.
The Interpretation discusses each of the factors in the multi-factor test, which it lists as follows:
A. Is the work an integral part of the employer's business?
B. Does the worker's managerial skill affect the worker's opportunity for profit or loss?
C. How does the worker's relative investment compare to the employer's investment?
D. Does the work performed require special skill and initiative?
E. Is the relationship between the worker and the employer permanent or indefinite?
F. What is the nature and degree of the employer’s control?

This is the fifth Administrator's Interpretation since the Obama Administration began issuing them in 2010. Prior to 2010, the DOL had issued opinion letters in response to specific questions from the public. The WHD's web page for Administrator's Interpretations is here.

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