The Six-Part Employee Classification System through the U.S. Labor Department

You may have heard in recent news about the difficulties that companies like Uber and Lyft have had regarding the classification of their drivers. While these companies contend that their drivers are independent contractors, the drivers see themselves as employees. Why is this distinction important? Because according to federal labor law, employees are afforded more benefits and protections that independent contractors are not.

Under the federal Fair Labor Standards Act, employers must classify their workers as either employees or independent contractors. However, misclassifying employees is becoming a growing problem as more businesses are restructuring to either meet the demands of labor laws or try to avoid complying with them altogether.

Purposely misclassifying a worker as an independent contractor not only denies those workers the protection that they may be entitled to, but also results in lower tax revenues for the government, and creates an uneven playing field for employers that abide by the rules. Businesses are unfairly cutting costs at the expense of their workers, who are being cheated out of benefits like minimum wage, compensation for overtime, worker’s compensation, and unemployment insurance.

The six-part “economic realities” test created by the Labor Department is meant to determine whether the worker is economically dependent on the company, in which case they must be classified as an employee, or whether they are in business for themselves as independent contractors.

The six questions on the test are:

1. Is the work an integral part of the employer’s business?
2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
3. How does the worker’s relative investment compare to the employer’s investment?
4. Does the work performed require special skill and initiative?
5. Is the relationship between the worker and the employee permanent or indefinite?
6. What is the nature and degree of the employer’s control?

A federal court will later decide whether Uber’s business model is indeed supported by independent contractors or employees.

Shook & Stone, Chtd. has handled cases involving worker’s rights and compensation since 1997. We have successfully recovered over $500 million for our clients and we won’t charge a dime unless we win your case. For a free, personalized case review, call our Las Vegas firm today.