Recently, the U.S. Department of Labor (DOL) announced a Proposed Rule to rescind and replace its 2021 independent contractor classification rule under the Fair Labor Standards Act (FLSA) to help employers and workers determine whether a worker is an employee or an independent contractor under the FLSA.
The Notice of Proposed Rulemaking (NPRM) was published on October 13, 2022 in the Federal Register. Comments on the Proposed Rule must be submitted within 45 days of the publication date.
Employers have until November 28, 2022 to submit comments on the effect the Proposed Rule would have on their business. The full text of the NPRM, as well as information on the procedures for submitting comments, can be found on the Federal Register website
Background
In January 2021, during the final days of the Trump Administration, the DOL published a final rule updating longstanding guidance regarding the classification of independent contractors under the FLSA (the “January 2021 Rule”). Among other things, the January 2021 Rule identified two “core factors” that were most probative of whether a worker was an employee or an independent contractor: the employer’s nature and degree of control over the work, and the worker’s opportunity for profit or loss.
Four days before the January 2021 Rule would have become effective, the DOL (now under the Biden Administration) published a rule delaying its effective date and later published another rule withdrawing it altogether. Legal action ensued which allowed the DOL time to future review and announce the current rulemaking.
The FLSA and Proposal
The FLSA establishes minimum wage, overtime pay, recordkeeping and child labor standards affecting full and part-time workers in the private sector and in Federal, State and local governments.
The Proposed Rule would reinstate the ‘economic realities’ test for analyzing whether a worker is an employee or an independent contractor under the FLSA. The multi-factor test aids in determining if a worker is either economically dependent on the employer for work, or is in business for him/herself as an independent contractor. The factors are described below:
- The nature and degree of control exercised by the hiring party over the work performed;
- The worker’s opportunity for profit and loss as determined by the hiring party or the worker’s own managerial skill;
- The investments of the hiring party and the working with respect to materials and equipment;
- The skill required to perform the job;
- The permanency of the working relationship; and
- The extent to which the services are an integral part of the hiring party’s business.
Summary
Under the Proposed Rule, additional factors may be relevant in determining whether the worker is economically dependent on the employer for work (defined as an employee) or is in business for themselves (defined as an independent contractor) for the purposes of the FLSA.
“Employers should monitor this development closely and are strongly encouraged to evaluate their current employee or independent contractor classifications while this Proposed Rule is in play,” said Tammy Spear, Director of Human Resources and PRIME Program at Avery Insurance.
Avery PRIME is our proprietary strategic risk management program designed to provide proactive advice on risk control solutions, Workers’ Compensation cost containment strategies, and human resources (HR) support. Merging unprecedented programs and innovative service platforms creates results. We pride ourselves on analyzing, advising, and advocating for our Avery PRIME clients.
Call us today to discuss how we can help your business lower risk and manage costs through collaborative strategies offered via Avery PRIME.
