On July 15, 2015 the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued an Administrator’s Interpretation analyzing how the Fair Labor Standards Act’s (FLSA) definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. The Interpretation discusses the breadth of the FLSA’s definition of “employ,” and provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee.
The DOL states that the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor). The WHD seeks to correct what it views as widespread mis-classification of employees as independent contracts and the Interpretation states that “most workers are employees under the FLSA.” The WHD’s interpretation of who constitutes an employee is more expansive than the Internal Revenue Service’s historical interpretation of who constitutes an employee.
The WHD guidance should alert employers to the need to work with counsel to evaluate their current worker classifications and anticipate likely increased worker costs. While we have already seen an increase in governmental investigations and private lawsuits challenging worker classification over the past several years, the new WHD Guidance means a further increase in that activity.
In July 2015, the DOL announced its long-anticipated proposed rule to extend overtime protections and update the regulations governing when executive, administrative and professional employees are entitled to minimum wage and overtime pay protections. Interested parties may submit written comments on the proposed rule on or before September 4, 2015 at www.regulations.gov. It is anticipated that the final rule will be published in the summer of 2016.
The proposed regulations would modify the salary test by increasing the minimum required salary from $455 per week ($23,660 annually), to $921 per week ($47,892 annually). The salary levels were last updated in 2004. In addition, the DOL’s proposed changes would:
- Increase the requisite total compensation level for employees to qualify as exempt “highly compensated employees” from the current $100,000 per year to $122,148 per year; and
- Automatically update the salary and total compensation thresholds in the future.
The DOL’s proposal would set the salary test level at the 40th percentile of weekly earnings for full-time salaried workers, and set the total compensation requirement for highly compensated employees at the 90th percentile.
The proposed changes are anticipated to result in a significant increase in the number of workers entitled to overtime pay. For a Department of Labor overtime fact sheet, see: http://www.dol.gov/whd/overtime/NPRM2015/factsheet.htm.