Employees and employers should be aware of the Department of Labor’s (DOL) interpretation about independent contractor status and the proposed changes to the salary basis test under the Fair Labor Standards Act (FLSA). In her recent column for the Indiana Lawyer, BGD partner Carolyn Clay Hall explains why the independent contractor interpretation and the proposed rule change to the salary basis test will have long-lasting implications for the business community.

DOL interpretation of independent contractor status

Of the DOL’s interpretation, Hall says the DOL believes that most workers are employees under the FLSA. The key question for the DOL is whether a worker is economically dependent on an employer (and thus is an employee) or if the worker is really operating his or her own business (and thus an independent contractor). This is determined through a six-factor economic realities test. The six factors include:
Extent to which the work performed is an integral part of the employer’s business;
Worker’s opportunity for profit or loss depending on his or her managerial skill;
Extent of the relative investments of the employer and the worker;
Whether the work performed requires special skills and initiative;
Permanency of the relationship; and
Degree of control exercised or retained by the employer.

No single factor is determinative, but Hall emphasizes that if the DOL investigator finds that independent contractors are misclassified, the employer could be liable for minimum wages, overtime compensation, worker’s compensation, unemployment insurance, health insurance coverage and employment withholding taxes. In addition, these “new” employees may be able to assert and seek statutory protections under state and federal civil rights and anti-discrimination laws prohibiting harassment, discrimination and retaliation.

Proposed rule change: FLSA salary basis test

Hall also mentioned that at the end of June, the DOL issued proposed regulations which, if adopted, could dramatically increase the number of workers eligible to earn overtime compensation under the FLSA. The FLSA includes “white collar” exemptions from overtime compensation for certain executive, administrative and professional workers if they meet certain pay and duties tests.

The proposed regulations did not amend the duties portion of the tests, but it did propose to more than double the salary-basis requirement for the white-collar exemptions.

The DOL has also proposed automatic updates to the salary-basis threshold going forward, meaning employers may have to continuously modify their payrolls to ensure their employees are properly classified as exempt.

By Carolyn Clay Hall of Bigham Greenebaum Doll