The Economic realities test is a judicial method that determines whether a worker or laborer is an employee dependent on the company or a contractor, independent from the company who's can support himself/herself with or without the job~ based on their economic reality.

According to Todd Lebowitz, to understand the factors of Economic Realities, the most common questions to set forth are the following:

1. Work is an integral part of the business: Is the Work an Integral Part of the Employer's Business?
2. Opportunity for profit or loss based on managerial skill: Does the Worker's Managerial Skill Affect the Worker's Opportunity for Profit or Loss?
3. The relative investment of the employer and worker: How Does the Worker's Relative Investment Compare to the Employer's Investment?
4. Skill and initiative: Does the Work Performed Require Special Skill and Initiative?
5. Permanency of the work: Is the Relationship between the Worker and the Employer Permanent or Indefinite?
6. Nature and degree of control: What is the Nature and Degree of the Employer's Control?

The FLSA or the Fair Labor Standards Act helps employers in deciding how to classify a worker. Each of the 6 factors is carefully considered, determined and examined based on how an individual is needed in a company. It is a test so basically, it seeks to answer the questions set forth by the Economic Realities. HR Consultants or employment law attorneys are to be consulted when doubting the classification given the results of the 6 factors.

Step-by-step explanation

Due to a difference in basic wage and pay range between a contractor and employee, Economic Realities test guides employer to make a lawful decision on how to classify the workers. It is necessary to carefully consider these factors as there might be lawful consequences in the event that a worker is mis-classified.