Today the Department of Labor (DOL) released a memo regarding classification of employees and independent contractors. This memo is meant to provide some clarification as to when a worker should be classified as an employee and when they’re considered an independent contractor. There is no change to the law at this time.
The 15 page document reiterates the Fair Labor Standards Act (FLSA)’s definition of employ as “to suffer or permit to work” and gives in depth descriptions of the “economic realities” tests used by courts to help determine the correct classification. The factors used in the “economic realities” tests typically include: (1) whether the work performed is an integral part of the employer’s business, (2) whether the worker has an opportunity for profit or a risk of loss depending on his or her “managerial skill,” (3) the investments made by the employer and the worker, (4) any special skills involved in the work performed, and (5) the degree of control the employer has over the worker and/or the work performed.
The memo states that the factors listed above are not to be used as a checklist, but can be used together as guidelines when determining each worker’s situation on a case by case basis. None of the factors have more significant weight than the others when determining the correct classification for a worker. If it is determined that a worker should be classified as an employee, that worker cannot “waive” their employee classification by signing a contract stating that they are working as an independent contractor.
Specific examples and references to previous court cases are provided throughout the guidance memo to help clear up any confusion employers may have regarding correct classification.
To read the full text of the DOL memo click here.