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New Guidance from U.S. Department of Labor Suggests More Workers Should be Classified as Employees and Not Independent Contractors

In recent years, many employers have sought to cut costs by hiring independent contractors – temporary, often part-time workers who are paid by the hour or job – rather than salaried employees.  While employers tout the new labor model as offering workers flexibility and control over their schedules and incomes, others contend that employers have an interest in misclassifying workers as independent contractors in order to lower their labor costs. This deprives workers of the protections and benefits of federal and state employment laws, as well as the right to be covered by the employer’s benefit plans.

The rapid expansion of the so-called “Uber Economy,” in which independent contractor jobs have proliferated across a range of industries, has attracted the attention of the U.S. Department of Labor (DOL), which has taken a number of steps to discourage the trend, including initiating litigation against firms it deems to be misclassifying employees.

On July 15, DOL signaled a new push toward restricting employers’ use of independent contractors when its Wage and Hour Division issued new guidance in the form of Administrator’s Interpretation No. 2015-1.  While this announcement is merely an agency interpretation and is not as binding as Department regulations, it sets forth the Department’s position on how to classify a worker as an employee or independent contractor, and is intended to provide guidance to employers when making these determinations.  

According to the DOL, the worker’s status is governed by the economic realities of the worker-employer relationship, and not by how the relationship is labeled by the worker and the employer.  Specifically, the DOL looks at the following criteria:

  • Whether the work performed by the worker is integral to the employer’s business;
  • Whether the worker’s management of his or her job function affects the amount the worker earns;
  • Whether the worker’s investment in the tools and resources  necessary to do the job is large or small relative to the employer’s;
  • Whether the work performed requires special skills and whether the worker offers those skills to other employers;
  • Whether the relationship between the worker and the employer is open-ended or temporary; and
  • The nature and degree of the employer’s control over how and when the work is performed.

In analyzing the definition of the word “employ” in the Fair Labor Standards Act, the guidance concludes that “most workers are employees under the FLSA’s broad definitions.”

In the light of this new guidance, nonprofits should consider whether any of their independent contractors should be reclassified as employees, as misclassification of workers can result in penalties under both federal and state law.  

For more information, please see the D.C. Bar Pro Bono Center’s legal alert.