United States: With The Flick Of A Pen, U.S. Department Of Labor Announces That Most Workers Are Employees

On July 15, 2015, the Wage and Hour Division of the United States Department of Labor ("DOL") issued guidance on employee and independent contractor classification under the Fair Labor Standards Act ("FLSA"). Stating that the key consideration in classification decisions is whether the worker is economically dependent on a business, the DOL emphasized its view that most workers are employees under the FLSA. Although it remains to be seen how far courts will go in accepting the DOL's interpretation, employers should be aware that the DOL will apply a very broad definition of "employee" when investigating a company's practices.

The guidance opens by noting that worker misclassification is a growing issue and an area of significant concern to the DOL. Independent contractors, unlike employees, are not protected by a number of employment laws, including guarantees of minimum wage, overtime compensation, unemployment insurance, and workers' compensation, nor are they eligible to receive a variety of other employee benefits such as medical insurance and retirement plan participation.

Under the FLSA, the definition of "employ" is to "suffer or permit to work." The DOL states that this "very broad definition of employment" covers both work that the employer directs and work that it permits to take place. In applying the "suffer or permit" standard to determine whether a worker is an employee or an independent contractor, federal courts generally use some version of an "economic realities" test. The underlying purpose of this test is to determine whether a worker is economically dependent on an employer or is legitimately in business for herself. The guidance details the factors the DOL believes should be considered in making this determination.

Those factors are:

  • Is the work an integral part of the employer's business? (The more integral the work is, the more likely the worker is an employee.)
  • Does the worker's managerial skill affect the worker's opportunity for profit or loss? (If it does not, the worker is more likely to be an employee.)
  • How does the worker's relative investment compare to the employer's investment? (A lower investment by the worker makes it more likely that the worker is an employee.)
  • Does the work performed require special skill and initiative? (If not, the worker is more likely to be an employee.)
  • Is the relationship between the worker and the employer permanent or indefinite? (A permanent or indefinite relationship suggests an employment relationship.)
  • What is the nature and degree of the employer's control? (The more control exercised by the employer, the more likely the worker is to be an employee.)

The guidance emphasizes that while the level of control over a worker is relevant, it should not be treated as more important than the other factors; instead, the goal is to consider all of the factors together to determine whether the worker economically relies on the business. The DOL notes that "each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee)." Employers should also keep in mind that courts routinely consider other factors based on the circumstances of the specific working relationship (e.g., did the contractor have his or her own desk in the employer's office, or did he or she have an employer-provided e-mail account or business cards) and will likely continue to do so following this guidance.

The guidance includes hypotheticals in an effort to help employers apply each factor. For example, regarding the first factor ("Is the work an integral part of the employer's business?"), the guidance notes that for a construction company that frames residential homes, carpenters are integral to the employer's business because carpentry is an integral part of providing the service of framing homes. A carpenter at such a company is likely an employee. Alternatively, a construction company that frames homes may engage a software developer to create software that helps the company track its bids, schedule projects and crews, and track material orders. Since these services are not an integral part of the company's business, the software company and its workers are likely independent contractors with respect to the construction company.

It is important to note that the factors described in the guidance do not reflect a change in the law or in the DOL's view of worker classification. Prior DOL guidance and court decisions have long applied these and similar factors. But in its guidance, the DOL goes out of its way to stress its view that most workers should be treated as employees and indicates that this will be an area of focus for the agency going forward.

As a result, employers should take this opportunity to ensure that workers are properly classified. As a starting point, employers should review long-standing relationships with independent contractors, as the duration of the relationship itself can suggest employment. Similarly, independent contractor relationships with individuals (as opposed to companies) should be reviewed, as they are particularly likely to be situations in which misclassification has occurred.

New York employers should also continue to consider guidance from the New York State Department of Labor. The State DOL agrees that multiple factors should be applied to determine a worker's proper classification. But the factors it considers are different, and focus on how much supervision, direction, and control an employer has over a worker. They also include the manner of compensation (employees are typically paid a salary or by the hour; independent contractors are typically paid by the job). And the State DOL highlights the importance of independent contractors actually offering their services to the public. For this reason, it is important to ask those you are planning to hire as contractors whether they have an independent business and have other customers; if they do not, as a matter of economic reality, they likely depend on your business and should be classified as employees. New York employers should apply both the federal and state tests when making classification determinations; if the worker would be classified as an employee under either test, you should treat him or her as an employee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.