The U.S. Department of Labor (DOL) issued guidance today alerting employers that “most workers are employees” under the Fair Labor Standards Act (FLSA), and reminding employers that the correct classification of workers as employees or independent contractors has critical implications for workers’ legal protections and employers’ obligations.

DOL Wage and Hour Division Administrator David Weil’s guidance–Administrator’s Interpretation No. 2015-1–states that the misclassification of employees as independent contractors is becoming more prevalent in the United States. The guidance recognizes that the FLSA’s definitions provide the basis for distinguishing between employees and independent contractors. The FLSA defines “employ” as “to suffer or permit to work.” The guidance explains that an entity “suffers or permits” an individual to work if, as a matter of economic reality, the individual is dependent on the entity.

The guidance reviews each element of the “economic realities test,” which focuses on whether a worker is economically dependent on the employer or in business for him or herself. The economic realities test typically includes the following factors: (a) the extent to which the work performed is an integral part of the employer’s business; (b) the worker’s opportunity for profit or loss depending on his or her managerial skill; (c) the extent of the relative investments of the employer and the worker; (d) whether the work performed requires special skills and initiative; (e) the permanency of the relationship; and (f) the degree of control exercised or retained by the employer.

The guidance stresses that the FLSA’s broad definition of employment must be considered when applying the economic realities test. It further states that the factors should not be analyzed mechanically or in a vacuum, and no single factor should be over-emphasized.

This guidance serves as a strong reminder for employers to review their classification of individuals as independent contractors. Improper classification not only has potential minimum wage and overtime implications, but also has the ability to impact worker protections (and employer liability) under several other laws, including state and federal tax law, workers’ compensation, and unemployment compensation, among others.