DOL Aims to Clarify Employee & Independent Contractor Status Under FLSA

Clearing the Confusion on Your Employment Status

If you watch the news or know a gig worker, you’ve likely heard about the nationwide controversy of whether or not these workers are considered employees or independent contractors. This widely-debated topic gained significant traction amid the COVID-19 pandemic when individuals and businesses alike had to file for unemployment. But those who worked for companies like Uber, Lyft and DoorDash had difficulties determining whether they qualified for unemployment as independent contractors, a status that many gig workers across the US want to challenge.

While Texas has already established in 2019 that gig workers are independent contractors, states like California have said the opposite. This controversy may have no end in sight for Texas gig workers and the nation as a whole, which is likely why the Department of Labor’s (DOL) proposed to provide clarity on this matter.

On September 22, 2020, the DOL announced a “proposed rule addressing how to determine whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor.” If passed, the proposal would:

  • Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee)
  • Identify and explain two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themself
  • Identify three other factors that may serve as additional guideposts in the analysis:
    • the amount of skill required for the work
    • the degree of permanence of the working relationship between the worker and the potential employer
    • whether the work is part of an integrated unit of production
  • Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

Employee vs. Independent Contractor: What’s the Difference?

With the above components in mind, let’s examine the existing interpretations of employees and independent contractors.

Employees

  • A worker is an employee when the business has the right to direct and control the work performed by the worker, including what will be done and how it will be done, even if that right is not exercised.
  • Employees are deemed economically dependent, regardless of skill level, on their employer’s business
  • A business has a right to direct or control the financial and business aspects of an employee’s job
  • Employees earn at least the federal minimum wage and, in most cases, overtime
  • A business provides benefits such as insurance, a pension plan, vacation pay or sick pay to its employees

Independent Contractors

  • Independent Contractors are generally seen as people who offer their services to the public (varies on a case-by-case basis)
  • The payer has the right to control or direct only the result of the work and not what will be done and how it will be done
  • An independent contractor’s earnings are subject to Self-Employment Tax
  • There is no employer-employee relationship, as independent contractors are self-employed
  • Independent contractors do not get benefits such as insurance, a pension plan, vacation pay or sick pay

Significant factors that help determine whether a person is an employee or independent contractor are:

  • The extent to which the services rendered are an integral part of the principal's business
  • The permanency of the relationship
  • The amount of the alleged contractor's investment in facilities and equipment
  • The nature and degree of control by the principal
  • The alleged contractor's opportunities for profit and loss
  • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor
  • The degree of independent business organization and operation

We Are Here to Answer Your Questions

Our Houston employment lawyers at Shellist Lazarz Slobin, LLP understand that it can be confusing to understand whether you are an employee or independent contractor. As advocates for employees who suffer discrimination, labor law violations and more, our employment attorneys are committed to helping you understand your worker status and what your options are. When you do, we can work to ensure you didn’t suffer any legal violations and take the necessary actions to mitigate the issues you’re facing.

Please contact us at (713) 352-3433 to learn more!

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