Following on the heels of its proposed rule expanding the number of employees entitled to overtime under the FLSA, the Department of Labor’s Wage & Hour Division has issued an Interpretation Letter that addresses independent contractor misclassification. Though the Letter, issued by WHD Administrator David Weil, contains no earthshaking new compliance obligations for employers, it does suggest that businesses can expect a more aggressive enforcement regime from the Department of Labor on independent contractor issues. In fact, the Letter directly states that “applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.”
In reaffirming the “economic realities” test for evaluating independent contractor status, the Administrator’s Interpretation Letter makes clear that no single factor is determinative of the issue, but rather that businesses claiming that their workers are independent contractors should use the economic realities factors as a guide to answering the ultimate question whether the workers are economically dependent on them or really are in business for themselves. As a reminder, those factors as discussed in both the Interpretation Letter and WHD Fact Sheet #13 are:
- The extent to which the work performed is an integral part of the employer’s business.
- Whether the worker’s managerial skills affect his or her opportunity for profit and loss.
- The relative investments in facilities and equipment by the worker and the employer.
- The worker’s skill and initiative.
- The permanency of the worker’s relationship with the employer.
- The nature and degree of control by the employer.
In light of this new Interpretation Letter, businesses should plan to review all of their independent contractor relationships to ensure that appropriate agreements are in place and that relationships that may have started as independent contractor arrangements have not morphed over time into employment relationships.