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Published on Jul 16, 2015
The ultimate inquiry under the FLSA is whether the worker is economically dependent on the employer or truly in business for him or herself. If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.This emphasis on that “economic dependence” on the employer may prove to be a game changer for many businesses—large and small. This will be particularly true for industries that traditionally classify many of their workers as independent contractors. Perhaps signaling increased scrutiny, many of the Interpretation’s most detailed examples involve workers in the construction trades and cleaning services, although brief mention is made of many industries. The issue of misclassification is broader than simply “independent contractor” versus “employee.” Federal and state agencies are on the look-out for any classification used to circumvent tax and labor provisions. Although relegated to a footnote, the Interpretation indicates that DOL is aware that there are “an increasing number of instances where employees are labeled something else, such as ‘owners,’ ‘partners,’ or ‘members of a limited liability company.’ So whether the worker is called a “partner” or an “independent contractor,” the economic reality of the arrangement will be scrutinized to determine if the individuals actually are employees of the entity. Although some industries well be affected far more than others, the Interpretation clearly signals that the DOL is watching and intends to prevent all employers from characterizing workers as independent contractors (or other non-employees) to reduce costs. Now is a good time to visit with your accountant or attorney to determine if you are classifying your workers correctly based on the economic reality of their relationship to your business.