In what appears to be an effort to crack down on the misclassification of employees as independent contractors, the United States Department of Labor (“DOL”) issued Administrator’s Interpretation No. 2015-1 providing guidance on determining whether a worker is an independent contractor. This is the first time the DOL has codified its stance on this particular subject in an Administrator’s Interpretation.
Administrator’s Interpretation No. 2015-1 adopts the six-factor economic realities test as the governing test used to determine whether a worker is an independent contractor. This test has been utilized by the federal courts in the past, and we previously reported on an Eleventh Circuit case where this test was used. The six factors are as follows:
1. The nature and degree of the employer’s control as to the manner in which the work is to be performed;
2. The worker’s opportunity for profit or loss depending on managerial skill;
3. The relative investments in facilities and equipment by the worker and the employer;
4. Whether the service rendered requires special skill;
5. The degree or permanency and duration of the working relationship; and
6. The extent to which the service rendered is an integral part of the employer’s business
It is important for employers to utilize these six factors to ensure that workers classified as independent contractors are not actually employees. Misclassification can result in costly liability, so it is important to closely review any independent contractor relationships and take appropriate steps if the factors weigh against independent contract status. Even if the only option is reclassification of the worker, this option will likely be less costly than the potential liability associated with misclassification.
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