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Most federal statutes protect only “Employees” and not independent contractors. Unfortunately for employers, most of these statutes do no meaningfully define the term “employee.” Historically, the courts have filled that vacuum and have, by and large, defined it differently according to what federal circuit they sat in and what statute they were interpreting. This section will explain how the courts define “employee” with respect to the major federal statutes that employers must interpret each and everyday The Internal Revenue Service (“IRS”) has developed a long litany of regulations and opinions regarding the classification of workers. Companies have different tax obligations depending on how they classify their workers. From a tax payment standpoint, it is in the employer’s best interest to classify their workers as non-employees. But companies who choose not to classify their workers as “employees” may run the risk of incurring penalties for misclassification, which includes restitution and interest. While the term “employee” is defined slightly differently for each of the federal employment taxes discussed above, one principal test of employee status applies for purposes of all federal employment taxes. That is the common law test. A worker who qualifies as an employee under the common law test qualifies as such for purposes of all federal employment taxes, unless an exception applies. An employer-employee relationship will exist: The IRS recognizes that companies may have difficulty applying the 20 factors so it issued non-binding training guidelines. These Guidelines distill the “important” factors into the three categories discussed below: (1) behavioral control; (2) financial control; and (3) the relationship to the parties. This test is just another way for employers to determine whether a worker is an employee or an independent contractor. However, this test is non-binding and the 20 factors remain the most reliable criteria to use to determine the status of the worker. The Fair Labor Standards Act (“FLSA”), and its many state counterparts, govern the payment of minimum wages and overtime to employees. More than any other, this statute poses the greatest risk to employers, as plaintiff’s attorneys increasingly use the FLASA as a basis for large collective actions. The number of FLSA collective actions filed has dramatically increased each year since 2000 : in 2008 there were 2418 actions filed, compared to just 349 in 2000- an increase of almost 700 percent. When Congress enacted the FLSA, it defined the term, “employee” with a rather vague explanation, so the courts have stepped in to provide some guidance. The FLSA utilizes “economic realities” to determine whether the worker is an employee or independent contractor. This test focuses on whether an individual is economically dependent on the business to which he provides services, thus establishing employee status, or whether the worker effectively is in business for himself. But the Circuits are split as to what factors should be considered. For example, the Ninth Circuit employs a four factor test to determine whether a worker is an independent contractor, considering whether the employer : (1) had the power to hire and fire the worker; (2) controlled the hours and / or other employment conditions; (3) controlled the level and method of payment; and (4) maintained employment records. The second and fifth Circuits use a five-factor test, while the Sixth and Tenth Circuits employ six factors in their analysis.