The U.S. Department of Labor (“DOL”) is giving increased scrutiny to companies that attempt to treat workers as independent contractors and thereby avoid tax and overtime obligations. DOL has issued new guidance warning that "most workers" should be classified as employees and not independent contractors.
In the guidance, released on July 15, 2015, the DOL emphasizes that, while the minimum wage and overtime provisions of the Fair Labor Standards Act (“FLSA”) are applicable only to employees, the appropriate definition of "employee" under the FLSA is far broader than many employers are utilizing. The DOL further notes that, in deciding whether a worker is an employee or a contractor, courts will use the multi-factor “economic realities” test, which focuses on “whether the worker really is in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee)."
This is a good development for workers as many companies have been abusing the concept of independent contractor status and using it to avoid paying overtime that workers would otherwise be owed.