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SESK: Stuff Everyone Should Know · sesk.info/founder-economic-reality-test-goal

Under the Labor Department's economic reality test, what is the main question about a worker?

Are they economically dependent on you, or in business for themselves?

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  1. Do they have a college degree?
  2. Did they sign a 1099 agreement?
  3. Are they dependent on you, or in business for themselves? ✔

Why: The Department of Labor uses the economic reality test to decide who is an employee under the Fair Labor Standards Act. Workers who depend on you for work are employees; people truly running their own business are contractors.

Huh, didn't know that: Factors include profit or loss chances, the worker's own investments, how permanent the work is and how much control you have.

The dad joke
Why did the duck get a job? To pay his bills.
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References

Answer: Are they dependent on you, or in business for themselves?. The Department of Labor uses the economic reality test to decide who is an employee under the Fair Labor Standards Act. Workers who depend on you for work are employees; people truly running their own business are contractors.

  1. DOL WHD Fact Sheet 13: Employee or Independent Contractor Classification Under the FLSA www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship
    decide if the worker is economically dependent on the employer for work or is instead in business for themself
    Checked 2026-10-11.

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Test yourself in the game

Starting and Running a BusinessThe IRS sorts evidence about whether a worker is an employee into which three categories?Starting and Running a BusinessA worker does your tasks from home, but you control what they do and how. To the IRS, they are usually what?Starting and Running a BusinessHow many IRS factors must point to "employee" before a worker counts as an employee?

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