On September 22, the U.S. Department of Labor (DOL) announced a proposed rule intending to offer clarity to determine whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor.
In the proposed rule, the DOL will:
- Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);
- Identify and explain two “core factors,” specifically: the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves;
- Identify three other factors that may serve as additional guideposts in the analysis including: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
- Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.
The proposed rule has officially been published in the Federal Register, and the 30-day window for receiving public comments has begun. This comment period must be completed before DOL issues the Final Rule that becomes the official law.
Next Steps for Employers
Employers are encouraged to submit comments on the proposed rule. Comments can be submitted through regulations.gov for 30 days following the publication on the Notice of Proposed Rulemaking in the Federal Register.
No immediate actions are needed, but employers will want to monitor developments to see if the rule goes into effect or is stalled by litigation. If it does take effect, it may be time to revisit your organization’s business models to determine whether you can take advantage of the rule, while keeping in mind other laws that have stricter rules for independent contractor status.
HR Works will also continue to monitor the situation and provide necessary updates.