Independent Contractors: DOL’s Recent Guidance

March 23, 2016

On July 15, 2015, David Weil, the Administrator for the U.S. Department of Labor (DOL), Wage and Hour Division, issued an Administrator’s Interpretation aimed at addressing the misclassification of employees as independent contractors. According to Administrator Weil, most workers qualify as employees under the Fair Labor Standards Act (FLSA) given the statute’s expansive definition of employment.

Whereas a worker genuinely in business for himself or herself is properly classified as an independent contractor, a worker that is economically dependent on the employer is an employee covered by the FLSA. The DOL, after noting that most workers are, in its view, employees and not independent contractors, will consider six “economic realities factors,” in the context of the FLSA’s broad definition of “employ,” meaning “to suffer or permit to work.”

The economic realities factors include:

  1. The extent to which the work performed is an integral part of the employer’s business;
  2. The worker’s opportunity for profit or loss depending on his or her managerial skill;
  3. The extent of the relative investments of the employer and the worker;
  4. Whether the work performed requires special skills and initiative;
  5. The permanency of the relationship; and
  6. The degree of control exercised or retained by the employer.

Notably, no one factor is entitled to greater weight than another and the factors should not be analyzed mechanically or in a vacuum. Rather, the factors are a road map for determining economic dependence or independence. The Administrator’s Interpretation is the first of what are likely to be many administrator interpretations emanating from the DOL based on the U.S. Supreme Court’s ruling in March 2015, holding that federal agencies can make significant changes to rules interpreting regulations without engaging in notice-and comment procedures.

Excerpted from the Michigan Chamber’s Employment Law Handbook: Hiring & Firing authored by attorneys from the Miller Canfield law firm.