"Most workers are employees under the FLSA’s broad definitions," affirmed the Department of Labor statement on July 15th and that they will enforce this standing position.
They stated, “Misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States. When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers. Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.”
While there is no single action or equation which determines a worker’s status, the government’s default designation is W2 and eligible for overtime. If a person is to be exempt (from overtime) or 1099, the organization must have a defensible reason for the designation. There is currently no requirement to document this rationale; though you can. To be an independent contractor, an organization must be sure multiple "factors" are not true about the worker's relationship to the company. For exempt/non-exempt decisions, consider running the DOL FLSA “Overtime Advisor” and saving the report as your documentation of the decision.
The short hand at Michigan HR Group is: if a worker quacks (works) like a duck (a W2 employee) then expect the government will want to tax them like a duck, too; and bite (penalize) you if the company chooses otherwise.
For more information, consider a conversation with one of our consultants: www.mi-hr.com.