US Department of Labor Announces Final Rule on Independent Contractor Test.
The US Department of Labor recently announced a final rule, providing guidance to employers to determine if a worker is an independent contractor or should be treated as an employee. For years, wage theft lawsuits have been filed against employers who misclassify employees as “independent contractors” to avoid paying payroll taxes and overtime to those employees. Misclassification also facilitates wage theft and allows some companies to have an unfair competitive advantage over others who are following the wage and hour law. Misclassified workers are frequently denied overtime, full minimum wage, or other protections.
The final rule is consistent with how the FLSA has been interpreted by Courts. It establishes a six party “economic reality” test which guides the analysis of a worker’s relationship with an employer. These factors always include:
- The opportunity for profit and loss the worker may have;
- The worker’s financial stake/investment in the work or business;
- The degree of permanence of the work relationship
- The degree of control the employer has over the employee’s work;
- Whether the work performed is essential to the employer’s business;
- The worker’s skill and initiative.
This is a non-exhaustive list. It serves to rescind the independent contractor rule issued but never enacted by Donald Trump.
The economic realities test provides benefits to workers who are missing out on healthcare benefits or overtime because the employer is abusing the independent contractor classification for its employees. The consequences of misclassifying a worker as an independent contractor can be severe, and can lead to a significant bill for the putative employer, along with attorneys’ fees, penalties, and damages for employers found to have violated the FLSA.