Last month we posted a Q & A about classifying an employee as both an employee and an independent contractor. Now the Department of Labor (DOL) has issued a new Administrator’s Interpretation to explain how the Fair Labor Standards Act’s definition of employee should be understood to help employers properly classify their workers.
Refocus Helps with Definition
As opposed to focusing primarily on the amount of control exerted by the employer, as was standard before, this guidance focuses more on the economic realities. According to the interpretation, an employee is a worker who is economically dependent on the employer and not in business for themselves. Most workers are employees, not independent contractors, and many workers presently classified as independent contractors should be reclassified as employees. If you currently assign work to independent contractors or will do so in the future, it would be a good idea to examine the reasons you have for classifying these workers as independent contractors instead of as employees.
The Department of Labor has announced that it will be aggressively pursuing businesses for misclassification of workers. The result of misclassification is that an employer will owe up to three years of back taxes on the misclassified employee’s wages, up to 41.5% of their total income. In addition to owing back taxes, employers could face fines, interest charges, and criminal penalties. The correct classification of workers has not only critical implications for the legal protections that workers receive, but also a significant impact on a company’s bottom line.
HR Professionals To Help You
Contact us at 214-442-5888 to learn more about payroll classifications. Our payroll specialists will be happy to help you. We can also share with you the benefits of our HR Answer Center, and quickly connect you with the pros to answer any questions you may have in determining who is an employee and who may be classified as an independent contractor.