Yesterday, the DOL released new guidance on the FLSA’s “suffer or permit” standard that governs the distinction between employees and independent contractors. According to the DOL, the goal of the guidance is to reduce the increasing number of employees who are misclassified as independent contractors.
The FLSA defines “employee” as “any individual employed by an employer.” 29 U.S.C. 203(e)(1). The term “[e]mploy includes to suffer or permit to work.” 29 U.S.C. 203(g). The phrase “suffer or permit” is determined by the economic realities test, which includes the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. The guidance goes on to discuss each factor in greater detail. Significantly, the DOL opined in the guidance that “applying the economic realities test in view of the expansive definition of ‘employ’ under the [FLSA], most workers are employees under the FLSA.” (Emphasis added).
In light of the DOL’s emphasis on misclassified workers, all employers should carefully evaluate each independent contractor to ensure that he or she is properly classified pursuant to the economic realities test. The full guidance is located here.