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Employee or Independent Contractor?

(posted: March 19th, 2018)

Employee or Independent Contractor?


Deciding whether your "employee" is an independent contractor or an actual employee is important for many reasons, not least of which is meeting minimum wage standards, correctly withholding taxes (or not), eligibility for benefits (or not), and other aspects of employment. As you probably realize, incorrectly defining your workers could result in legal liability and/or penalties.

Well, now the U.S. Department of Labor (DOL) has withdrawn its 2014 guidance regarding the meaning and scope of the term "employment relationship" under the federal Fair Labor Standards Act (FLSA) and replaced it with its guidance from 2008. As a result of this change, the DOL no longer advises that "most workers are employees."

Withdrawn 2014 Guidance

In 2014, the DOL issued guidance on how to determine whether an employment or independent contractor relationship exists for purposes of the federal FLSA. The guidance stated, among other things, "Applying the FLSA's definition [of "employ"], workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees."

Effective immediately, this guidance has been withdrawn.

2008 Guidance Once Again in Effect

The 2014 guidance has been replaced by guidance from 2008. The 2008 guidance does not contain the statement that "most workers are employees." However, this guidance does include the same "economic realities" test present in the 2014 guidance, under which determination of employee status is made by considering the following factors:

  • Whether the work performed is an integral part of the employer's business.
  • Whether the worker's managerial skill affects the worker's opportunities for profit or loss.
  • The worker's relative investment compared to the employer's investment.
  • Whether work performed requires special business skills, judgment, and initiative.
  • If the worker-employer relationship is permanent or indefinite.
  • The nature and degree of the employer's control of the work.

Note that the above factors are ones which the U.S. Supreme Court has considered significant, indicating that there is no single test or rule for determining whether an individual is an independent contractor or an employee.

Please contact us for more assistance.

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