Worker Misclassification Is Focus of New DOL Guidance for Employers
An “Administrator’s Interpretation” has been issued by the Wage and Hour Division of the Department of Labor (DOL) to provide clearer guidance regarding how employers should be classifying workers.
Focused in defining when workers should be employees versus independent contractors, this Interpretation, which was issued by Administrator David Weil, is intended to help employers avoid misclassification, which can significantly infringe on workers’ rights and protections.
In fact, in the Interpretation Weil specifically noted that misclassification is a growing problem that “is found in an increasing number of workplaces in the United States.” He went on to explain that:
When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.
Economic Realities Test Should Be Used to Properly Classify Workers, DOL Explains
Clarifying just how employers are supposed to classify workers appropriately per the terms of the Fair Labor Standards Act (FLSA), the Interpretation explains that the “economic realities” test should be used. This test “focuses on whether the worker is economically dependent on the employer or in business for him or herself.”
The factors that need to be evaluated when relying on this test to classify workers include (but are not necessarily limited to):
- The type and importance of the work done by a worker – Is the work pivotal to the business operations? Does it require specialized business skills (rather than just skills of trade)?
- Whether the work relationship is temporary or longer-term/permanent
- Whether the worker retains some degree of control over the relationship/work being done
- How invested the worker is in a business (rather than just investing in the tools of a trade).
As the Interpretation explains, each of the above factors should be considered equally by employers when classifying workers, and “most workers are employees under the FLSA.” The Interpretation goes onto to point out that:
Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor). The factors are a guide to make this ultimate determination of economic dependence or independence.
This recently issued Interpretation could have big impacts in certain industries, particularly for businesses that have shifted towards primarily classifying the majority of workers who carry out their operations as independent contractors (like, for instance, the ride share service Uber).
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Contact an Atlanta Employment Lawyer at the Law Firm of Barrett & Farahany, LLP
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