Employers Need to Take Care to Avoid Employee Misclassification

February 18th, 2016 by JBWK

Submitted by Elizabeth S. Olcott

The Department of Labor is taking notice of the manner in which employers classify their employees and independent contractors. This classification has a significant effect on a variety of issues including minimum wage and overtime compensation protections, taxes, and workers’ compensation. On July 15, 2015, the DOL issued an Administrator’s Interpretation No. 2015-1 clarifying the rules on classifying individuals as employees or independent contractors. The DOL provided guidance on the application of the Economic Realities Test, which the DOL favors over the common law factor test.

  • Economic Realities Test Factors:
    • Is the work an integral part of the employer’s business?
    • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
    • How does the worker’s relative investment compare to the employer’s investment?
    • Does the work performed require special skill and initiative?
    • What is the nature and degree of the employer’s control?
    • Is the relationship between the worker and the employer permanent?

Employers that are unsure as to whether they are correctly classifying their employees and independent contractors should contact an attorney experienced in employment and labor law. The DOL’s Administrator’s Interpretation No. 2015-1 can be found here: http://www.dol.gov/whd/workers/misclassification/ai-2015_1.htm

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