DOL Proposes Rule to Determine Employees and Independent Contractors

Career

Written By ESR News Blog Editor Thomas Ahearn

On September 22, 2020, the U.S. Department of Labor (DOL) announced a proposed rule addressing how to determine whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor and is encouraging public comment from interested parties, according to a DOL news release.

“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act. Once finalized, it will make it easier to identify employees covered by the Act,” Secretary of Labor Eugene Scalia stated in the news release about the proposed rule.

“The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility,” Wage and Hour Division (WHD) Administrator Cheryl Stanton stated in the news release. The DOL’s proposed rule would:

  • 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 himself or herself (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 himself or herself;
  • Identify three other factors that may serve as additional guideposts in the analysis: 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.

This Notice of Proposed Rulemaking (NPRM) is available for review and public comment for 30 days after it is published in the Federal Register. The DOL encourages interested parties to submit comments on the proposed rule. The web posting offers the public more time to review the NPRM before the comment period begins.

The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights. To learn more about the DOL, visit www.dol.gov.

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