HR Alert

DOL Withdraws Guidance on Independent Contractors and Joint Employment

Withdrawals Effective June 7, 2017

The United States Department of Labor (DOL) has announced the withdrawal of both its 2015 guidance regarding independent contractors and its 2016 guidance regarding joint employment. Cautionary note: Still in effect are the common law rules used by the IRS to determine whether a worker is an employee or independent contractor for purposes of the Internal Revenue Code.

Withdrawn Guidance on Independent Contractors

In 2015, the DOL issued guidance regarding the misclassification of employees as independent contractors for purposes of the federal Fair Labor Standards Act (FLSA). The guidance outlined the agency's interpretation of the "economic realities" test for determining whether a worker is an employee (and thus covered by FLSA minimum wage and overtime provisions) or an independent contractor. The test focuses on the following factors in order to determine whether the worker is economically dependent on the employer (and thus an employee) or in business for him or herself (and thus an independent contractor):

  • Whether the work performed is an integral part of the employer's business.
  • Whether the worker's managerial skill affects the worker's opportunities for profit or loss.
  • The worker's relative investment compared to the employer's investment.
  • Whether work performed requires special business skills, judgment, and initiative.
  • Whether the worker-employer relationship is permanent or indefinite.
  • The nature and degree of the employer's control of the work.

Effective June 7, 2017, this guidance has been withdrawn.

Please be advised that the DOL has not released any further guidance as to how it will determine whether a worker is an employee or independent contractor for purposes of the FLSA. However, the common law rules (which examine behavioral control, financial control, and the type of relationship) used by the IRS to determine whether a worker is an employee or independent contractor for purposes of the Internal Revenue Code remain in effect.

Withdrawn Guidance on Joint Employment
Under the FLSA, an employee may be "jointly employed"--employed bytwo or more employers. Joint employers, both individually and jointly, mustcomply with the FLSA's minimum wage and overtime provisions. Jointemployers must combine all hours worked by an employee in a workweek todetermine whether he or she worked over 40 hours and is due overtime pay.

In 2016, the DOL issued guidance specifying the most likely scenarios underwhich joint employment exists:

  • Where the employee has two or more technically separate but related or associated employers, and each employer benefits from the employee's work.
  • Where a worker, as a matter of economic reality, is economically dependent on two employers: an intermediary employer (e.g., a staffing agency) and another employer who engages the intermediary to provide workers.

Effective June 7, 2017, thisguidance has been withdrawn.

Click here to read the DOL press releaseon the withdrawals.

Note: The withdrawals do not change the legal responsibilities ofemployers under the FLSA.

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