The U.S. Department of Labor is proposing a new rule for classifying independent contractors that aligns with longstanding judicial interpretations and restores multifactor, totality-of-the-circumstances analysis when determining whether a worker is an employee or independent contractor.
The proposal introduces six factors for considering whether a working relationship would classify as an independent contractor:
Opportunity for profit or loss depending on managerial skill
Investments by the worker and the employer
Degree of permanence of the work relationship
Nature and degree of control
Extent to which the work performed is an integral part of the employer’s business
Skill and initiative.
“The Notice of Proposed Rulemaking proposes a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the Fair Labor Standards Act,” the DOL stated. “The department believes the new rule would preserve essential worker rights and provide consistency for regulated entities.” The proposed changes would do the following, according to the DOL:
Align the department’s approach with courts’ Fair Labor Standards Act (FLSA) interpretation and the economic reality test.
Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
Assist with the proper classification of employees and independent contractors under the FLSA.
Rescind the 2021 Independent Contractor Rule that was initiated in the final days of the Trump administration.
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”
The DOL is accepting comments regarding the new proposed rule until Nov. 28.
