Regulatory Update:
Department of Labor's Wage and Hour Division Issues Interpretation on the
Identification of Employees Who Are Misclassified as Independent Contractors
Overview
On July 15, 2015, the Department of Labor's
Wage and Hour Division (WHD) issued an
interpretation of how to determine if a worker is
an employee or an independent contractor in
relationship to the employer.
WHD assumes most workers are employees
under the Fair Labor Standards Act (FLSA).
Because of ambiguities and vagueness in the
statutory definition of this employment
relationship, federal courts have fashioned a test
for determining the status of a worker under the
FLSA. The WHD Interpretation provides an
analysis of the courts' economic realities test and the application of factors that the WHD will be used to
determine if a worker is an employee or an independent contractor.
It is important to note that these factors must be considered together and no one factor should be overemphasized. No one factor is determinative of whether a worker is an employee or independent
contractor.
In general, a worker is an employee if he or she is economically dependent on the employer. A worker is
an independent contractor if he or she is in business for him or herself. The 6 factors below are intended
to help determine the worker status. Just because one factor suggests an employment relationship or an
independent contractor relationship does not mean the relationship should be characterized as such. WHD
will look at the totality of the circumstances to determine the worker-employer relationship.
Six Factors of the Economic Realities Test
The Interpretation looks at the 6 most common factors applied by federal courts. The bulleted items below
are taken from the Interpretation. To be considered an independent contractor 1. The worker's work should not be an integral part of the employer's business.
o Workers are more likely to be employees rather than independent contractors if they
perform the primary job of the employer.
o Work can be considered integral to a business even if the work is just one component of
the business.
2. The worker should be in business for him or herself with evidence of using managerial skills
relative to exposure to profit or loss and development of future work.
o This factor focuses on whether the worker exercises managerial skills and whether those
skills affect the worker's opportunity for both profit and loss.
o The worker's ability to work more hours or the amount of work available from the
employer has nothing to do with the worker's managerial skills.