Misclassifying employees as independent contractors is a costly mistake. Under the federal Fair Labor Standards Act (FLSA), the difference between an employee and an independent contractor depends on the circumstances under which work is performed. The distinction has major implications for wage and benefit structures. Unfortunately, businesses routinely fall into the trap of classifying workers based on external criteria – such as independent contractor agreements, remote versus in-person work, or franchise operation – rather than on work circumstances.
This winter, in an effort to reach both businesses and workers, the DOL added several misclassification resources to its website. The additions include a mythbusters page that tracks common classification mistakes, as well as information on who’s actually covered by the FLSA. For employers, the most practical tool will probably be a legalese-free PowerPoint that walks through the six “economic realities” factors commonly used to determine worker status. Since there’s no single definition of “employee” or “independent contractor” under federal law, these six factors are what employers need to know in order to properly classify their workers.
If you want to dig deeper into the six factors, check out the federal Wage-Hour Division Administrator’s Interpretation on the standards for determining worker classification. The article fleshes out each factor and provides detailed examples.
If you have questions about whether your workers are correctly classified, feel free to contact us.