The Department of Labor (DOL) issued a new Administrator’s Interpretation to explain how to define an employee under the Fair Labor Standards Act. Instead of focusing on the amount of control exerted by the employer, as the previous standard did, the new guidance focuses on the economic realities of the relationship. Under the new interpretation, an employee is a worker who is economically dependent on the employer and not in business for themselves. Most workers are employees, not independent contractors, and many workers presently classified as independent contractors should be reclassified as employees. If you assign work to independent contractors or are planning to do so in the future, it is a good idea to examine the reasons you have for classifying these workers as independent contractors as opposed to employees.
The Department of Labor has announced that it will continue aggressively pursuing businesses for misclassification of workers. Misclassification can be expensive for an employer. Employers found to be misclassifying workers will owe up to three years of back taxes on the misclassified employee’s wages, which could total up to 41.5% of their total income. As well as owing back taxes, the employer could face fines, interest charges, and criminal penalties. Correct classification of workers not only has critical implications for legal protections, but can also have a significant impact on an employer’s bottom line.