The U.S. Department of Labor has once again provided guidance on whether individuals should be classified as employees or independent contractors, this time relating to virtual marketplaces. Employees must be paid minimum wage and overtime, while independent contractors may not be subject to the Fair Labor Standards Act.
In an opinion letter, the DOL addresses the question of whether service providers in a virtual marketplace are employees or independent contractors under the FLSA. The DOL applies the six-factor economic reality test to find that they could be categorized as independent contractors.
The six factors considered in the analysis include:
- The degree of the potential employer’s control and the nature of that control;
- The permanent status of the worker’s relationship with the potential employer;
- The amount of investment in facilities, equipment or helpers;
- The amount of skill, initiative, judgment or foresight required for the job;
- The opportunities for profit or loss; and
- The extent of integration into the potential employer’s business.
The DOL found that the marketplace was a referral service and the service providers were working for customers not the potential employer. They also found that there was no permanent relationship because the workers could stop providing services whenever they wanted. Since the company did not invest in the materials and the workers had control over the opportunity for profit and loss, they did not have to be categorized as employees.
