The Wage and Hour Division of the DOL is tackling employee misclassification

Whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make. The Labor Department supports the use of legitimate independent contractors − who play an important role in our economy − but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.

Clarity for Employers
As fissuring and misclassification have spread, providing workers and employers a clear understanding of what makes a worker an employee may be more important now than ever. Accordingly, the Department of Labor has issued an administrator’s interpretation that analyzes how the Fair Labor Standards Act’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,” and provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee.

Here is an example from DOL Administrator’s Interpretation:

Example 1: A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company; he does not independently schedule assignments, solicit additional work from other clients, advertise his services, or endeavor to reduce costs. The worker regularly agrees to work additional hours at any time in order to earn more. In this scenario, the worker does not exercise managerial skill that affects his profit or loss. Rather, his earnings may fluctuate based on the work available and his willingness to work more. This lack of managerial skill is indicative of an employment relationship between the worker and the cleaning company. In contrast, a worker provides cleaning services for corporate clients, produces advertising, negotiates contracts, decides which jobs to perform and when to perform them, decides to hire helpers to assist with the work, and recruits new clients. This worker exercises managerial skill that affects his opportunity for profit and loss, which is indicative of an independent contractor.

Fore more examples read more of the Administrator’s Interpretation No. 2015-1

 

infographic_employee_contractor

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). The Department of Labor believes 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 goal of the Department of Labor is always to strive toward workplaces with decreased misclassification, increased compliance, and more workers receiving a fair day’s pay for a fair day’s work.

Strategic Enforcement
The Wage and Hour Division continues to attack this problem head on through a combination of a robust education and outreach campaign, and nationwide, data-driven strategic enforcement across industries.

The Department of Labor is also continuing to work with the IRS and 22 states on this issue in a variety of ways – through, for example, information sharing and coordinated enforcement.

On July 28, 2015 California Attorney General Kamala D. Harris and the U.S. Department of Labor’s Wage and Hour Division (WHD) signed a cooperative agreement to crack down on employer wage theft and other illegal labor practices. The Memorandum of Understanding signed by both agencies will facilitate the sharing of information and enhance enforcement of labor violations. Read the entire article.

Source: Department of Labor, Dr. David Weil the administrator for the Wage and Hour Division

2015 © Copyright Payroll Masters

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please contact your employment attorney in connection with any fact-specific situation in which you intend to take significant employment action. Readers agree that they will not hold Payroll Masters in indemnity and Payroll Masters assumes no liability. Payroll Masters is not engaged in rendering legal or accounting services. Therefore, Payroll Masters assumes no responsibility for claims arising from the use or implementation of the above information.