Guidance Issued on Independent Contractors

Posted by BAS - 06 August, 2015

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The Department of Labor issued an “Administrator’s Interpretation” informing employers that they must pay attention to the potential misclassification of employees as independent contractors under the Fair Labor Standards Act. 

The new guidance confirms that most workers are employees under the FLSA, and observes that the misclassification of employees as independent contractors is becoming more and more relevant. It is a large problem in the U.S. since independent contractors do not receive many of the employee benefits afforded to employees, and employers do not pay the government the same taxes as it does on employees. 

The guidance provides that the FLSA’s economic realities test must take into account the definition of “employment” which requires the individual to be dependent on the entity for economic purposes. 

The economic realities test includes the following:

  1. The extent to which the work is an integral part of the employer’s business
  2. The worker’s opportunity for profit or loss;
  3. The investments of the employer and worker;
  4. If the work requires special skills;
  5. The permanency of the relationship; and
  6. The degree of control by the entity. 

An analysis of classification needs to be analyzed as a whole, and no single factor should control. Employers who hire independent contractors should review their classification of such individuals in light of the new guidance.

 


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