The Department Of Labor Has Issued New Guidance On Differentiating Between Employees And Independent Contractors Essay

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BACKGROUND: The Department of Labor has issued new guidance on differentiating between employees and independent contractors.

ISSUE:
Issue #1: How does the new DOL guidance change the way in which employers classify employees and independent contractors?

CONCLUSION:
Issue #1: The DOL has now rejected the common law control test utilized by the IRS and adopted the economic realities test, saying that most workers are considered employees under the FLSA’s broad definition.

APPLICABLE LAW:
The DOL defines employ as “to suffer or permit to work” and has adopted the “economic realities” test to determine whether an individual is an employee or an independent contractor. This test focuses on whether the worker is economically dependent on the employer or legitimately in business for himself (herself). This test involves six factors, but the DOL notes that they “should not be applied in a mechanical fashion” but instead with an understanding that the factors are indicators of economic dependence.

Courts have noted that the “suffer or permit” standard ensures as “broad of a scope of statutory coverage as possible” and this broad coverage is essential to accomplish the Act’s goal. This definition means that an individual is dependent upon finding employment in the business of others, whereas independent contractors are those workers with economic independence who are operating their own business.

The six factors under the “Economic Realities” test are as follows:

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