WASHINGTON D.C — In a recently-issued Wage and Hour Division Administrator’s Interpretation, the U.S. Department of Labor clarified the factors that employers have to consider in determining whether a worker is an employee or a federal contractor. These factors, collectively known as the “economic realities” test, weigh heavily in favor of a worker’s classification as an employee that is covered by the Fair Labor Standards Act (FLSA) and other labor laws. No one factor is determinative, and all of the factors are meant to be indicators of whether a worker is economically dependent on an employer.
Factor 1: Is the work an integral part of the employer’s business?
If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer. A true independent contractor’s work, on the other hand, is unlikely to be integral to the employer’s business.
Factor 2: Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
In determining whether a worker has an opportunity for profit or loss, the focus under FLSA is whether the worker’s managerial skill can affect his or her profit and loss. A worker in business for him or herself faces the possibility of not only making a profit, but also experiencing a loss. The worker’s managerial skill will often affect opportunity for profit or loss beyond the current job, such as by leading to additional business from others or by reducing the opportunity for future work.
Factor 3: How does the worker’s relative investment compare to the employer’s investment?
Employers should consider the nature and extent of its relative investments as compared to the worker’s in determining whether the worker is an independent contractor in business for him or herself. The worker should make some investment in order for there to be an indication that he or she is an independent business. An independent contractor typically makes investments that support a business beyond any particular job.
Factor 4: Does the work performed require special skill and initiative?
A worker’s judgment, initiative, and business skills, not his or her technical skills, will assist in determining whether the worker is economically independent. The fact that workers are skilled is not itself indicative of independent contractor status. If those specialized skills are technical and used to perform the work, then they are probably not indicators that workers are in business for themselves.
Factor 5: Is the relationship between the worker and the employer permanent or indefinite?
Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee. After all, a worker who is truly in business for her or himself will not choose a permanent relationship that is dependent on an employer. The lack of permanence should be reviewed to determine if the reason is indicative of the worker running an independent business.
Factor 6: What is the nature and degree of the employer’s control?
The employer’s control should be analyzed in light of the ultimate determination whether the worker is economically dependent on the employer or truly an independent businessperson. The worker must control meaningful aspects of the work performed such that it is possible to consider that worker as a person conducting his or her own business.
These factors should help employers properly consider whether a worker is misclassified as an independent contractor. You should call (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page if you feel have been misclassified and deprived of your wage rights under FLSA. Our top-rated team of wage lawyers will evaluate your situation to determine your best course of action. We will also determine if it is in your best interest to file a lawsuit against your employer. There are strict time limitations for filing, so it is important that you call our experienced attorneys today