More Action on Employee Misclassification

It’s not just the overtime changes that the DOL is looking at this summer.  As many of you may know, the big talk in HR circles is about the changes that the DOL have proposed to the minimum compensation requirements of the white-collar exempt statuses. Well the DOL is not only actively working on this change; they have also thrown down the gauntlets with employee misclassifications as well.

On July 15, 2015, the Wage and Hour Division released Administrator’s Interpretation 2015-1, explaining in detail the “Suffer or Permit” standard of the Fair Labor Standards Act (FLSA). The Administrator explains that the “to suffer or permit to work” standard and the “economic realities” test provide a broader scope of employment and that these should be used in determining the classification of employees. What does this mean, well to cut down the 15 page interpretation; it means that the DOL is taking a broader scope in what defines an employee relationship.  I would also like to remind you that there is a vested interest on the part of the DOL to classify workers as employees, in increased taxes, penalties and control.

The document breaks down the “economic realities” test into 6 factors: 

  1. Is the work an Integral Part of the Employer’s Business?

  2. Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit of Loss?

  3. How Does the Worker’s Relative Investment Compare to the Employer’s Investment?

  4. Does the Work Performed Require Special Skill or Initiative?

  5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?

  6. What is the Nature and Degree of the Employer’s Control?

The administrator continues on to explain that no single factor should be over-emphasized.  Each factor needs to be considered and put into a whole to determine the employment relationship.

For further information you can review the full document at the hyperlink listed above or you can contact StaffScapes for additional information.  I will leave you with one quote from the conclusion of the interpretation, “In sum, most workers are employees under the FLSA’s broad definitions”.  This is the foundation that the WHD is starting from, so if the DOL comes knocking on your door; they will make every effort they can to classify your workers as employees.

 

Written By: Jake Stratton