US DOL Issues Administrator's Interpretation on Worker Misclassification
On July 15, 2015, the US Department of Labor (DOL) issued Administrator’s Interpretation 2015-1: The Application of the Fair Labor Standards Act's "Suffer or Permit" Standard in the Identification of Employees Who Are Misclassified as Independent Contractors, linked here. According to the US DOL , the misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers, and the entire economy. In the Administrator's Interpretation, the DOL concludes that most workers are employees under the federal wage and hour law, the Fair Labor Standards Act (FLSA).
The DOL is particularly concerned with the intentional misclassification of employees as independent contractors as a means to reduce costs and avoid compliance with employment laws and regulations. Misclassified employees are often denied access to critical benefits and protections to which they are entitled, such as minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces.
Administrator's Interpretation 2015-1 provides a 15 page analysis of how the FLSA’s definition of "employ" guides the determination of whether workers are employees or independent contractors under the law. It discusses the breadth of the FLSA's definition of "employ," as well as provides guidance on the "economic realities" factors applied by courts in determining if a worker is indeed an employee. According to the DOL, the economic realities test is used to determine whether a worker is economically dependent on the employer (employee) or is really in business for himself (independent contractor). The DOL indicates all of the economic realities factors must be considered in each case, and no one factor is determinative of whether a worker is an employee.
Notably, the analysis of whether a worker is an employee or an independent contractor under the FLSA is different than the determination under IRS guidelines and this Administrator's Interpretation does not impact the analysis commonly used by the IRS for tax purposes. The IRS has not released any information related to the DOL's Administrator's Interpretation.
The DOL believes that the Administrator's Interpretation, with its discussion of the relevant law and inclusion of numerous examples, will be helpful to both employers and employees. Though not a regulation or legislation and therefore not requiring employer action, it does clarify the Agency's position. It is not yet known how the DOL will apply their guidance to individual employers. Employers are encouraged to continue to use caution when classifying workers as independent contractors for purposes of compliance with federal and state wage and hour laws as well as for tax purposes.
Additional information from the US DOL on misclassification is available on the Wage and Hour Division's webpage: Misclassification of Employees as Independent Contractors. Additional information from the IRS on worker misclassification can be found on the IRS.Gov website.