BizLawBuz …. The Power of Know

In this changing economic climate, employers are seeking new and creative ways to hire or classify workers, hoping to avoid some of the mandatory benefits imposed by the Fair Labor Standards Act (FLSA). Under the FLSA, employers are required to pay minimum wage, overtime, and maintain certain records. Employers are therefore looking to independent contractors, subcontractors, temp agencies, or labeling the workers “independent contractor,” “tenant,” or “subcontractor” or “temporary labor provider” to avoid the label “employee.” Employer classification, contract language, or the manner in which a worker was hired does not hold much weight when determining if a worker is an employee for purposes of the FLSA. As a result, employers need to carefully consider the “economic realities” of the relationship between the employer and the worker to determine if FLSA applies.

Six factors of the “Economic Realities” test
The “economic realities” test is used in courts across the country to determine if a worker is an employee under the FLSA. The test is composed of six factors. Each factor is important, and no factor weighs more heavily than another.

1. How permanent is the relationship between the parties?
2. What degree of skill is required for rendering the services?
3. What investment does the worker make in equipment or materials needed to perform the task?
4. What is the worker’s opportunity for profit or loss? This factor depends on the worker’s skill.
5. What is the degree of the alleged employer’s right to control the manner in which the work is performed?
6. Is the service being performed an integral part of the alleged employer’s business?

Business owners should take note that the FLSA test differs dramatically from tests commonly used in other aspects of their business, such as for tax purposes, and that the “economic realities” test is the only one that applies to the FLSA.

For any questions regarding applicability of the FLSA to your business, and for assistance analyzing the status of your workers under the “economic realities” test, please contact an attorney at Wright Penning & Beamer.

Julie Pfitzenmaier

Many employers hire students as interns during the summer months and are perhaps questioning how those interns should be paid to ensure the employer’s compliance with the Fair Labor Standards Act (FLSA). If your interns are “employees,” FLSA applies, and the interns must be paid at least minimum wage. If the interns can be categorized as a “trainee,” however, they may be exempt from FLSA.

For an intern to qualify as a trainee, the intern’s position must meet the following criteria:

1) The training, even though it includes actual operations at the facilities of the employer, is similar to that which would be given in a vocational school;
2) The training is for the benefit of the trainee;
3) The trainee does not displace regular employees and works under close observation;
4) The employer providing the training derives no immediate advantage from the activities of the trainee, and, on occasion, the employer’s operations may actually be impeded;
5) The trainee is not necessary entitled to a job at the completion of the training period; and
6) The employer and the trainee understand that the trainee is not entitled to wages for the time spent in training.

If interns fail to meet any of the above criteria, they should be paid as employees, with at least minimum wage and overtime compensation when earned. Note that class credit is not considered wages and should not be substituted for wages.

Julie H. Pfitzenmaier