Ditchmen • NUCA of Florida | Page 21

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.