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The Administrator's Interpretation 2015-1 is from David Weil, who heads the
WHD. It elaborates on positions the agency has taken earlier on the employee
versus independent contractor issue, citing many federal courts'
interpretations of the Fair Labor Standards Act (FLSA).
Noting that the matter of improper classification requires a "multi-pronged
approach," the WHD is working with the IRS and states to tackle
misclassification.
Weil notes that the origin of legal definitions of employee came from state
laws intended to stamp out unlawful child labor. Employers in the early
20th Century sought to circumvent child labor laws by having middlemen do
the hiring and supervising of child laborers. Those employers then claimed to
be unaware that children were doing the work.
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2. Does the Worker's Managerial Skill Affect His or Her Opportunity for
Profit or Loss?
This gets at the question of whether the individual is truly running a
business. For example, "a worker's decision to hire others, purchase
materials and equipment, advertise, rent space, and manage time tables
may reflect skills" that impact profit or loss, the WHD document states. If
the worker's only way to affect earnings is deciding how many hours to
work, that would indicate an employment relationship.
The document illustrates the principle by describing a worker who provides
cleaning services for corporate clients. The individual "performs
assignments only as determined by a cleaning company, does not
independently schedule assignments, solicit additional work from other
clients, advertise his services or endeavor to reduce costs." This appears to
be an employment relationship.
On the other hand, if the worker does tasks such as negotiating contracts
and deciding which jobs to perform and when, his exercise of such
managerial skills is indicative of an independent contractor.
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Moreover, that control can't just be theoretical. "The worker must actually
exercise it" the WHD states.
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"This form simply indicates that the employer engaged the worker as an
independent contractor, not that the worker is actually an independent
contractor under the FLSA," the document states.
The Administrator's Interpretation concludes with this assertion: "In sum,
most workers are employees under the FLSA's broad definitions." However,
keep in mind that this test applies to DOL determinations and may not be
relied upon by other state or federal agencies, such as the IRS. In light of the
position from the WHD, if you have any doubt about whether you have
classified a worker appropriately, the wise course of action would be to
consult a legal professional.
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