Identifying workers under the Fair Labor Standards Act can be a complicated task and can lead to misclassification between employees and independent contractors. The definition of “employee” may not have been so clear in the past, but with a new rule relating to independent contractors (“1099s”), distinguishing the two may have gotten easier.

The U.S. Department of Labor (Department) has revised its interpretation of independent contractor status under the Fair Labor Standards Act (FLSA or Act) and 29 CFR Parts, 780, 788 and 795. This proposal brings order to promote certainty for stakeholders, reduce litigation, reduce worker misclassification, and encourage innovation in the economy. This process simplifies identifying employees covered by the Act, while simultaneously respecting workers’ decisions to pursue the freedom and entrepreneurialism associated with being an independent contractor.

How to Determine FLSA Status:

  • Determine whether a worker considers himself or herself in business for themselves (independent contractor) or is economically dependent employer for work (employee);
  • Identify and explain 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 two factors will help determine if a worker is economically dependent on someone else’s business or is in business for themselves.
  • Identify three elements to further evaluate:
    • 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

Determining FSLA status of workers is significant for Small Businesses that bid on set aside contracts and that try to meet the 50% of costs of contract performance. This revision should assist Small Businesses identify these employees and accurately provide the percentage needed to show self-performance.

If you need additional support on how to remain compliant with your government contracts and determining your worker’s FSLA Status, reach out to Coley at [email protected] or directly at 210.402.6766.

Resource: Handy Reference Guide to the Fair Labor Standards Act

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