The U.S. Department of Labor (DOL) has issued a proposed rule to clarify who is an independent contractor under the federal Fair Labor Standards Act (FLSA).
The proposed rule is scheduled to be published in the Federal Register on Oct. 13. Employers may comment on the proposal for 45 days after the published date.
The DOL is proposing to rescind a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight in determining the status of independent contractors. Under the new proposed rule, employers would use a totality-of-the-circumstances analysis, in which all the factors do not have a predetermined weight.
Such factors in the so-called economic realities test may include:
- The amount of skill required for the work.
- The degree of permanence of the working relationship.
- The worker’s investment in equipment or materials required for the task.
- The extent to which the service rendered is an integral part of the employer’s business.
“We have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said U.S. Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
The 2021 rule, which is still in effect, made it easier for employers to classify workers as independent contractors, rather than employees. Under the FLSA, employees are entitled to minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.
The new proposed rule directs employers to include exclusivity as a consideration under the permanency factor, but it acknowledges that simply having multiple jobs does not weigh in favor of independent contractor status.
