New standards by the federal Department of Labor (DOL) will determine whether you’re an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). This could decide whether or not you should be paid at least the minimum wage and overtime. New Jersey has its own employee-friendly rule for this issue.

This new final rule rescinds the DOL’s previous final rule (developed under the Trump administration) on this topic, proving these rules aren’t that final. They may come and go with Presidential administrations who write these rules to be more or less pro-employee, depending on their priorities.

Although the new rule (developed under the Biden administration, called the economic realities test) is expected to result in more workers being considered employees, it doesn’t go as far in that direction as the ABC test, which New Jersey and California use when applying their laws.

An employer found to have misclassified employees as independent contractors under the FLSA may be ordered to pay unpaid wages, overtime, liquidated damages, attorneys’ fees, and costs.

How Does the Economic Realities Test Work?

The latest final rule applies to those protected by the FLSA. The following factors will be used when the DOL decides if someone is an employee or independent contractor. None of the factors are more important than others.

1. Opportunity for profit or loss depending on managerial skill

If the person has no chance for profit or loss from their work, they’re probably an employee. Some decisions show the person’s an independent contractor running their own business. Relevant facts include whether the worker:

• Accepts or declines jobs
• Chooses the order and time when jobs are performed
• Engages in marketing, advertising, or other efforts to expand their business or secure more work
• Makes decisions to hire others, buy materials and equipment, and rent space

An independent contractor should be acting as a business being paid to help another business. If that’s not the case, the worker’s an employee.

2. Investments by the worker and the potential employer

This factor covers:

• Does the employer spend money to support an employee, or is the worker spending money to perform a project, run, and expand their business? If the employer pays the money, the person is probably an employee
• Is the employer or worker buying tools and equipment? If the worker spends the money, they’re probably an independent contractor
• Does the worker spend money to expand what they can do, reduce costs, or find more customers? If so, they’re probably an independent contractor

The more money the worker spends to support their business, the more they appear to be an independent contractor.

3. Degree of permanence of the work relationship

It’s more likely the person’s an employee if there’s no expected end to the relationship, it’s continuous, or it’s the only work the person does. An independent contractor status is more likely if the work has a given duration, the person works for others as well, and the work is project-based or sporadic.

4. Nature and degree of control

The more actual and potential control the organization has, the more likely the worker’s an employee. Facts to consider include whether the potential employer:

• Sets the worker’s schedule
• Supervises the work’s performance
• Explicitly limits the worker’s ability to work for others
• Uses technology to supervise the work’s performance

If the person is given tasks to perform or items to make along with details the potential employer expects, but it’s up to the worker to determine how that’s done, they’re more likely an independent contractor.

5. The extent to which the work performed is an integral part of the potential employer’s business

This factor depends on whether the function the person performs is an integral part of the business. They’re more likely an employee when their work is central, critical, or necessary to the potential employer’s principal business.

6. Skill and initiative

The person is more likely an employee if the organization trains them to improve their skills. The fact the person has specialized skills doesn’t mean they’re an independent contractor. The issue is how those skills are used. Are they used in connection to a business-like initiative that shows they’re an independent contractor?

The DOL claims the newer final rule is more consistent with the FLSA as past court decisions interpret it and will reduce the chances of misclassification.

What is New Jersey’s Rule?

While there are limits on who’s covered by the FLSA, New Jersey wage and hour law covers all employees in the state. The ABC test determines if someone is an employee protected by the law. It presumes the person is an employee unless all of the following apply:

1. The person has and will be free from control or direction of the work’s performance, both under a contract and in fact
2. The person’s service is outside the usual course of the business, or the service is performed outside the enterprises’ place(s) of business
3. The worker is usually engaged in an independently established trade, profession, occupation, or business

If you fall under the FLSA and New Jersey law, you should seek whichever provides greater protection and benefits, given your situation.

Has Your Employer Misclassified Your Job or your Payroll Status?

If you have questions about your employment status or believe you have grounds for a legal claim, we will listen to you, explain the law, and suggest right and reasonable approaches for you.

Kingston Law Group are compassionate counsel and tough advocates.  We are ready to help. Call us at 609-683-7400, or contact us online, to schedule a near-term initial consultation at a reduced fee. Call today. You will be glad you did.