DOL Issues New Guidance on Employee/Independent Contractor Classification

DOL Issues New Guidance on Employee/Independent Contractor Classification

For some time, the Department of Labor’s (DOL) Wage and Hour Division has been working on establishing better guidance for the classification of workers as either employees or independent contractors (ICs). On July 15, DOL issued its new interpretation and it could have a significant impact on clubs that utilize caddies or any “independent contractors.”

Under this new guidance, DOL requires club leaders to consider a multi-factor “economic realities” test to classify workers. These factors are to help establish whether the worker is economically dependent on the club or whether he is truly in business for himself and economically independent from the club.

The factors outlined by DOL are as follows:

1. Is the work performed an integral part of the club’s business? – If the work he performs is not integral to the club, then he is likely an IC. However, work can be “integral” even if it is just one component of the club’s business.
2. What is the worker’s opportunity for profit or loss depending on his own managerial skills? – If he has the ability to make business decisions and use his initiative to affect his profits or losses, then he is likely an IC. However, this does not relate to his ability to merely work more hours but rather to make decisions about how he makes his money and where he does his work.
3. What is the extent of relative investment in each business by the club and the worker? – If he makes some investment in his business, then he is likely an IC. However, if it is a relatively minor investment, then the worker is more likely to be an employee.
4. Does the work performed require special skills and initiative? – If he needs specialized skills to do the work, then he is likely an IC. However, he will also have to use independent judgment and initiative when using those skills to be truly independent.
5. How permanent is the relationship? – If he does not stay with the club until he quits or is fired but comes and goes, then he is likely an IC. A true IC will likely work for more than one club.
6. What is the degree of control exercised by the club over the worker? – If he controls crucial aspects of the job to be performed, then he is likely an IC. The nature of control by the club will be determinative here.

The new guidance emphasizes that no single factor will be determinative. Instead, a club should look at all of these together to determine how economically dependent or independent the worker is from your club. The more it can be shown that the worker is in business for himself (and thus economically independent from the club), the more likely it is he will be seen as an independent contractor.

Unfortunately, this DOL guidance made clear that the Fair Labor Standards Act’s (FLSA) definition of employee is to be liberally construed to “provide broad coverage for workers.” DOL also stressed that the basic intent of the FLSA is to label most workers as “employees.

As such, it seems the bar has been raised to appropriately classify a worker as an independent contractor. Therefore, clubs that require the use of caddies or that have golf and tennis professionals working as independent contractors may be forced into major changes to comply with the law. Individuals who have had a long “independent contractor” relationship with the club may come under additional scrutiny from this point forward.

NCA will continue to review this guidance and let you know when additional information regarding enforcement is provided. Until then, we strongly urge all members currently using independent contractors to review this new DOL interpretation with their club counsel.