KNOW YOUR RIGHTS
IN DOING SO , THE FINAL RULE RESTORES THE MULTIFACTOR , TOTALITY- OF-THE-CIRCUMSTANCES ANALYSIS TO ASSESS WHETHER A WORKER IS AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR UNDER THE FLSA .
Under the final rule , the six economic reality factors are all weighed to assess whether a worker is economically dependent on a potential employer for work according to the totality of the circumstances . Moreover , additional factors may be relevant in determining whether the worker is an employee or independent contractor if they indicate whether the worker is in business for themselves , as opposed to being economically dependent on the potential employer for work .
Arguably , the final rule may result in classifying a greater number of workers as employees , not independent contractors . This classification would be significant , particularly in the gig economy , as it would afford more individuals FLSA rights and protections . The DOL has released guidance to help employers comply with the final rule .
THE ECONOMIC REALITY TEST
The DOL uses the ERT to determine whether a worker is an employee or an independent contractor under the FLSA . This test uses multiple factors to determine if an employment relationship exists . The goal of the test is to decide if the worker is economically dependent on the employer for work or is instead in business for themselves . For example , if the economic realities show that the worker is economically dependent on the employer for work , then the worker is an employee . However , if the economic realities show that the worker is in business for themself , then the worker is an independent contractor . The economic realities of the entire working relationship are looked at to decide whether a worker is an employee or an independent contractor .
The ERT applies the following six economic reality factors to analyze employee or independent contractor status under the FLSA or FMLA :
1 . The degree to which the employer controls how the work is done ;
2 . The worker ’ s opportunity for profit or loss , depending on managerial skill ;
3 . The amount of skill and initiative required for the work ;
4 . The degree of permanence of the working relationship ;
5 . The worker ’ s investment in equipment or materials required for the task ; and
6 . The extent to which the service rendered is an integral part of the employer ’ s business .
Proper worker classification requires employers to evaluate the six economic reality factors when determining a worker ’ s status for FLSA purposes . No single factor ( or set of factors ) automatically determines a worker ’ s status as either an employee or an independent contractor .
1 . THE DEGREE TO WHICH THE EMPLOYER CONTROLS HOW THE WORK IS DONE
This factor considers the potential employer ’ s control , including reserved control , over the performance of the work and the working relationship ’ s economic aspects . Facts relevant to the potential employer ’ s control over the worker include whether the potential employer :
• Sets the worker ’ s schedule ;
• Supervises the performance of the work ;
• Explicitly limits the worker ’ s ability to work for others ;
• Uses technological means to supervise the performance of the work ( such as using a device or electronic monitoring );
• Reserves the right to supervise or discipline workers ; or
• Places demands or restrictions on workers that do not allow them to work for others or work when they choose .
Whether the potential employer controls economic aspects of the working relationship , including prices or rates for services and the marketing of the services or products provided by the worker , should also be considered .
Actions taken by the potential employer for the sole purpose of complying with a specific applicable federal , state , tribal , or local law or regulation are not indicative of control . In contrast , actions taken by the potential employer that go beyond compliance with a specific applicable federal , state , tribal , or local law or regulation and instead serve the potential employer ’ s own compliance methods , safety , quality control , or contractual or customer service standards may be indicative of control .
2 . THE WORKER ’ S OPPORTUNITY FOR PROFIT OR LOSS , DEPENDING ON MANAGERIAL SKILL
This factor considers whether the worker has opportunities for profit or loss based on managerial skills , including initiative , business acumen , or judgment that affect the worker ’ s economic success or failure in performing the work .
Relevant factors for employers to consider when evaluating whether a worker has opportunities for profit or loss based on managerial skill include , among others :
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