Understanding Worker Misclassification and Independent Contractors

(Legal Issues, Dept of Labor) Permanent link

Understanding Worker Classification - Gardener ImageGiven the current changes to the overtime regulations, businesses may be considering how reclassifying employers to independent contractors could ease the costs of compliance.

However, in 2015, long before the Wage and Hour Division Department of Labor (DOL) finalized the new overtime rules, it issued new guidance on the misclassification of workers focusing on the application of the Fair Labor Standards Act (FLSA) and the multi-factor “economic realities” test. 

This test explores whether an employee is economically dependent upon the employer through six specific questions:

  • Is the work an integral part of the employer’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment compare to the employer’s investment?
  • Does the work performed require special skill and initiative?
  • Is the relationship between the worker and the employer permanent or indefinite?
  • What is the nature and degree of the employer’s control?

This guidance was shared through the DOL’s Misclassification Initiative. Through this initiative, more than 35 states and the Internal Revenue Service are working closely with the DOL to share information and resources in an effort to curb misclassification. North Carolina is the newest state to join the initiative. 

Based on this DOL guidance, clubs should review existing independent contractor relationships and seek external review by legal counsel when establishing new relationships to ensure they fall within the bounds of the updated FLSA guidance.

Posted by Will Flourance at 09/29/2016 09:24:31 AM |