The Department of Labor has released an Administrator’s Interpretation asserting that, in determining whether someone is an independent contractor or an employee (for Fair Labor Standards Act purposes), what matters is the “economic reality”; the Interpretation de-emphasizes the traditional common-law test (used by the IRS), which focuses on who has the right to control the means and manner of the work.
The Interpretation says (in part):
… although the common law control test was the prevalent test for determining whether an employment relationship existed at the time that the FLSA was enacted, Congress rejected the common law control test in drafting the FLSA.
Instead, the FLSA defines “employ” broadly as including “to suffer or permit to work,” which clearly covers more workers as employees.
In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself.
A worker who is economically dependent on an employer is suffered or permitted to work by the employer.
Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.
… When determining whether a worker is an employee or independent contractor, the application of the economic realities factors should be guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad.
All of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee. …
Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).
Interpretation at 1-2 (citations and footnotes omitted, emphasis and extra paragraphing added.)
(Hat tip: Employment & Labor Insider.)