According to the Department of Labor (DOL), most workers are “employees,” not independent contractors. After years of watching more contract workers fall outside the categories of “employees,” this morning, the DOL issued an Administrator’s Interpretation regarding the alleged “misclassification” of workers as independent contractors, and broadly includes most workers as employees. The DOL’s guidance responds to the skyrocketing usage of contract labor in the wake of increased government regulation, including the Affordable Care Act. Bucking this trend, agencies like the DOL have increased regulatory action to clampdown on worker misclassification. Today’s Interpretation continues the trend. The DOL Administrator outlines the current law regarding classification, and articulates – in no uncertain terms – the department’s position that “most workers are employees under the FLSA’s broad definitions.” The DOL relies on the FLSA’s broad definition of the term “employ” as being “to suffer or permit to work” and fully embraces the “economic realities test,” which has regularly been adopted by courts as the most applicable to determining whether an individual is a contractor. The economic realities test applies a multi-factor approach, including: (a) the extent to which the work performed is an integral part of the employer’s business; (b) the worker’s opportunity for profit or loss depending on his or her managerial skill; (c) the extent of the relative investments of the employer and the worker; (d) whether the work performed requires special skills and initiative; (e) the permanency of the relationship; and (f) the degree of control exercised or retained by the employer. Many courts and other federal agencies have used similar tests. For example, the IRS applies three broad categories:
- Behavioral: Does the company control or have the right to control how the worker does his job?
- Financial: Are the business aspects of the worker’s job controlled by the company (i.e. how the worker is paid, whether expenses are reimbursed, who provides tools / supplies, etc.)?
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.); will the relationship continue; and is the work performed a key aspect of the business?