In part one of this series on employee classification, the definitions of employee and independent contractor according to the Fair Labor and Standards Act were outlined along with a multi-factor ‘Economic Realities’ developed by the Supreme Court and Circuit Court of Appeals.
In this next part, we take a look at what the Department of Labor’s (DOL) interpretation means and why it is significant.
How significant is the DOL’s Interpretation?
So what does this memorandum truly mean for employers? Should every employer contact their human resources director and classify all of their independent contractors as employees?
Well, even though the memorandum was drafted by the Administrator of the DOL, the interpretation still is what it is… an interpretation. It is not a new statute, new case law, or in any way binding. It is merely an opinion.
However, the fact that the memorandum is an opinion does not mean that employers should dismiss it. In fact, employers should take this interpretation very seriously. Given that the DOL is tasked with enforcing the employee-independent contractor distinction, the court is likely to find the DOL’s interpretation highly persuasive.
Additionally, because the DOL has taken the time to draft such a thorough and pervasive memorandum, it is another indicator that the DOL will start to increase enforcement of the issue. The DOL’s Wage and Hour Division started a “Misclassification Initiative” specifically tasked with reducing the FLSA violations. From 2012 through 2013, the DOL hired 300 investigators to further that very initiative.
The DOL’s misclassification team paired with IRS audits that employers have grown to fear should be enough of an incentive for employers to be proactive on this issue. Thus, it is in the employer’s best interests to review their existing independent contractor relationships in a manner that is tilted towards the worker being an employee, rather than an independent contractor. Studies show that 10 to 30 percent of employers misclassify their workers. Extrapolating even further on those numbers, the DOL proclaims that most workers characterized as independent contractors are truly employees.
As you got a glimpse of in part one, determining whether a worker is an employee or independent contractor is a complicated evaluation. Therefore, if you have any questions, it would be prudent to contact legal counsel.
It is important to note that every employment law situation is unique and this article is not replacement for legal counsel. The Labor and Employment attorneys at Young Wooldridge, LLP are ready to assist business owners and employers accurately creating and classifying employee/independent contractor relationships.