Employee or Contractor? Guidelines Employers Need to Know

released a new series of guidelines for helping employers to determine whether the individuals that work for them should be classified as “employees” or “independent contractors.” In 2014, the Department of Labor required companies to pay 109,000 misclassified workers more than $79 million in back pay. The Department has found that often, employees are misclassified as contractors so the employer can avoid providing benefits such as health insurance, worker’s compensation and overtime pay, as well as reduce the company’s tax burden. (Contractors are by definition self-employed, and therefore they take on their entire tax burden without aid from their employer.) The newly released guidelines — which concern the application of the Fair Labor Standards Act — do not contain any new information; rather, they are meant to serve as a reminder to employers that they must properly classify their workers, and to help employers understand the labor laws and what qualifies one as an independent contractor. The guidelines specify that “In order to make the determination whether a worker is an employee or an independent contractor … courts use the multi-factorial ‘economic realities’ test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself.” It goes on to say that “most workers are employees under the FLSA,” and that independent contractors are generally viewed as economically independent, “operating a business of their own.”]]>