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Feds issue interpretation of independent contractor guidelines

July 15, 2015

Misclassification of employees as independent contractors was addressed today by the US Department of Labor. It issued an “administrator’s interpretation” of how the Fair Labor Standards Act’s definition of “employee” guides the determination of employee or contractor status under the “economic realities” test.

“In sum, most workers are employees under the FLSA’s broad definitions,” according to the interpretation. “The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”

The interpretation was also discussed in a blog post by David Weil, administrator for the Labor Department’s Wage and Hour Division.

“Ultimately, the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor),” Weil wrote in the post. “We believe in providing employers all of the information that they need to comply, and this document, with its discussion of the relevant law and inclusion of numerous examples, will help employers.”

The Wage and Hour division will also continue to pursue misclassification through enforcement, Weil wrote.

Independent contractors are a common feature in the contingent workforce space, and many online staffing firms rely on them. Some firms such as ride-sharing services Uber and Lyft have been sued by workers claiming they were misclassified as independent contractors. Some gig economy firms such as Shyp are beginning to use W-2 employees instead of independent contractors.

Separately, The Washington Post reported Democratic presidential candidate Hillary Clinton vowed to “crack down” on independent contractor abuse in her first major speech outlining her economic platform today at New York City’s New School.


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Roberto G. Cruz, Legal and Compliance Counsel07/15/2015 08:46 pm

The DOL guidance issued today doesn't create any new rules or regulations. It does provide many real-world examples and hypothetical work engagement situations designed to make it easier for businesses to recognize their own practices and compare to see if they are misclassifying workers under the FLSA. It also emphasized the broad nature of the FLSA definition of “employ” to apply to most workers, making them employees no matter what businesses call them: “In sum, most workers are employees under the FLSA’s broad definitions.” This means that passing an IRS audit or vindicating your business in court may now be easier endeavors than clearing a DOL investigation. Considering that DOL Wage and Hour investigations are far more numerous than class action lawsuits, businesses should be sure they are truly evaluating each proposed independent contractor and its project parameters for accurate worker classification.

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