“As corporate budgets continue to tighten, more employers are looking to classify workers as independent contractors in an effort to reduce costs, such as overtime compensation, employee benefits, payroll taxes, unemployment compensation, and workers compensation,” the plaintiff’s attorney said. “The law is clear, however, that many of these workers do not qualify as independent contractors.”

A number of cases involving disputes over independent contractor classification have made it to the U.S. Supreme Court. The court has maintained there is no single test to determine the proper classification of a worker as an employee or independent contractor under FLSA regulations. “The total activity or situation” must be considered.

To determine the legal classification of a worker as an employee or independent contractor, the following factors must be considered:

• The extent to which the services rendered are an integral part of the principal’s business
• The permanency of the relationship
• The amount of the alleged contractor’s investment in facilities and equipment
• The nature and degree of control by the principal
• The alleged contractor’s opportunities for profit and loss
• The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor
• The degree of independent business organization and operation

A bill called the “Independent Contractor Proper Classification Act of 2007” was proposed to Congress but never became law.

SOURCE: Fair Labor Standards Act › Will the great recession mean more FLSA lawsuits?

According to the bill’s summary, the proper classification of these workers would ensure they are treated correctly in relation to employment tax purposes upon a determination of misclassification by the Secretary of the Treasury; repeal the ban on Treasury regulations or revenue rulings on employee/independent contractor classifications; and eliminate the defense of industry practice as a justification for misclassifying workers as independent contractors.

The bill also would require the Secretary to establish a procedure for workers to petition for a determination of their status as employees or independent contractors; would require the secretaries of the Treasury and Labor to issue annual reports and exchange information on worker misclassification cases; directs the Secretary of Labor to include on workplace posters required by the Fair Labor Standards Act (FLSA) a notice informing workers of their right to seek a status determination; and requires employers to notify their independent contractors of their federal tax obligations, labor and employment protections inapplicable to independent contractors and their right to seek a status determination from the IRS.

Employers also would be required to maintain records on independent contractors for three years, including names and tax identification numbers.

The bill was read twice before the Senate and then referred to the Committee on Finance, where it is currently being reviewed. Read the full bill, Independent Contractor Proper Classification Act of 2007.

SOURCE: Fair Labor Standards Act › Obama bill seeks to clarify contractor employee classification