Tuesday, September 29, 2020

Department of Labor’s Proposed Rule Clarifies FLSA Employee vs. Independent Contractor Analysis

By Casey Erick


The Department of Labor (DOL) has just issued a proposed rule to clarify whether a worker is deemed an employee for purposes of the Fair Labor Standards Act (FLSA) or an independent contractor who would not be subject to the protections of that Act.

 

Goal of the Proposed Rule

The proposed rule attempts to provide clarity by focusing on the “economic reality” test to determine whether a worker is an employee or an independent contractor. The test consists of five factors, two of which are considered “core factors” and carry more weight. The two core factors examine: (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based upon his or her initiative or investment.

In other words, the core factors look at whether the worker is economically dependent on the business of another, or whether the worker is in business for him- or herself. This inquiry carries more weight for obvious reasons:  if a worker is not economically dependent on the business of another, it is more likely that the worker is an independent contractor.

There are three additional factors that the proposed rule would also consider, all designed to help determine if a worker is economically dependent (i .e. an employee), or economically independent (i.e. an independent contractor). These remaining factors are:

  1. the skill required for the work;

  2. the permanence of the working relationship; and

  3. whether the work is part of an integrated unit of production.

This last factor differs from current tests regarding a worker who is “integral” to the business and instead examines the work  on more specific level involved in the actual work. Similar to other DOL tests, all five factors would be assessed in light of the actual relationships, practices, and duties of the worker rather than any agreement between parties.

 

Deadline for Comments

The DOL’s proposed rule is open for comment until October 26, 2020. Should the rule be enacted following the notice period, it could provide clarity and conformity on a federal level. However, employers should still be wary of varied state and local rules that govern independent contractor classification. As with minimum wage or non-exempt status, state or local laws provide different standards.

 

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