The Recent FLSA Update: What you need to know

The Fair Labor Standards Act (FLSA) recently made an update that is pretty significant for employers. Specifically, how to determine whether a worker is an employee or an independent contractor. In this blog we break it all down in very bite-able pieces: what the FLSA is, factors used to determine classification, and importantly, the role the employer plays in ensuring compliance.

What is the FLSA?

The Fair Labor Standards Act is a labor law, first established in 1938 (and updated continuous since) that seeks to ensure workers are receiving a guaranteed minimum wage and access to overtime (when applicable) as well as prohibits child labor. In essence it protects employees from unfair pay practices.

In order to carry out the protections of this law, it is critical to define who is considered an employee and who an independent contractor. With the rise in popularity of independent contractors, the line between the two increasingly gets blurred and the FLSA steps in to make establish guidelines for his determination.

Let’s look at the difference between employee and independent contractor

  1. Employee: An employee is an individual who is employed by a business owner to perform agreed-upon services for pay, and is under certain protections and control of the employer.
  2. Independent contractor: Like an employee, this individual is hired to perform certain duties, however, they are often operating as self-employed, carrying out specific services for a business as opposed to ongoing, regular duties.

Because the two can be so similar in their performance for an employer, it is importance to establish the factors involved in their category definitions.

The Economic Reality Test, and its’ categories

The Economic Reality Test is used to decide whether or not a worker is an employee or independent contractor. It determines if an ‘employment relationship’ exists between worker and owner.

It uses the following factors in doing so:

  1. Opportunity for profit or loss depending on managerial skill
  2. Investments by the worker and the employer
  3. Permanence of the work relationship
  4. Nature and degree of control
  5. Whether the work performed is integral to the employer’s business
  6. Skill and initiative

Now, it’s important to be familiar with each of these six factors, so we invite you to visit the Department of Labor website to read about them in depth (don’t worry, it’s really not as daunting as it may appear!):

Finally, what employers are responsible for.

Put simply, it’s critical (REQUIRED) that an employer classifies (and therefore pays and/or provides protections to) a worker correctly. But not doing so they are committing unfair labor practices and making themselves vulnerable to penalties. This update to the FLSA gives employers the information needed in making the correct classifications.

We understand these things can feel overwhelming and confusing to employers, which is why we specialize in supporting the small business owner. So if you’re looking for support in building an impactful brand while protecting your employees and business, Eos HR can help! We make sure small business employers have the resources (and the confidence!) to lead a dynamic team. Schedule a free consultation today to learn more.