In March 2024, the Department of Labor issued regulations addressing how to analyze whether a worker is an employee or an independent contractor under the FLSA (29 CFR part 795, effective March 11, 2024). Employees receive the protections of the FLSA. Independent contractors are in business for themselves and therefore are not covered by the FLSA.
The economic reality test uses multiple factors to see if an employment relationship exists under the FLSA (29 CFR 795.110). The goal of the test is to decide if the worker is economically dependent on the employer for work or is instead in business for themself. All factors should be considered. No single factor determines a worker’s status, and no one factor or combination of factors are more important than the other factors. Instead, the totality of the circumstances of the working relationship should be considered.
The following factors are considered in the assessment of whether a worker is an employee under the FLSA or an independent contractor in business for themself:
- Opportunity for profit or loss depending on managerial skill,
- Investments by the worker and the employer,
- Permanence of the work relationship,
- Nature and degree of control,
- Whether the work performed is integral to the employer’s business, and
- Skill and initiative.
Additional factors may be considered as well if they are relevant to whether the worker is in business for themself or is economically dependent on the employer for work. There are certain facts, however, that are not relevant to whether an employment relationship exists. What the worker is called is not relevant—a worker may be an employee under the FLSA regardless of the title or label they are given. A worker who is paid off the books or receives a 1099 is not necessarily an independent contractor and agreeing verbally or in writing to be classified as an independent contractor—including by signing an independent contractor agreement—does not make a worker an independent contractor under the FLSA. Additionally, such facts as the place where work is performed, whether a worker is licensed by State/local government, and the time or mode of pay do not determine whether a worker is an employee or an independent contractor under the FLSA.
Fact Sheet #13, published on the DOL website, provides general information on how to determine if a worker is an employee or independent contractor under the FLSA. Misclassification occurs when a worker is an employee under the FLSA but is instead treated as an independent contractor by the employer.
Misclassification may deny workers minimum wage, overtime pay, and other protections. Also, employers that comply with the law are placed at a competitive disadvantage compared to other businesses that misclassify employees. It is an employer’s responsibility to determine if a worker is an employee or independent contractor under the FLSA. School districts are encouraged to seek legal counsel when making these determinations.
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