U.S. DOL announces plans to propose rulemaking for independent contractors

On June 3, 2022, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) announced it plans to issue a notice of proposed rulemaking to clarify the roles of independent contractors and employees.

Prior to the rulemaking process, the WHD will be hosting public listening sessions in June for employers and workers to share their perspectives on the independent contractor classification.

Once a proposed rule is published in the Federal Register, there will be a notice and comment period allowing all interested parties an opportunity to review the proposal and provide formal written comments.

Background

On March 14, 2022, a federal judge in the U.S. District Court for the Eastern District of Texas reinstated the previous independent contractor rule under the Fair Labor Standards Act (FLSA). Basically, the court determined that the prior administration’s rule took effect as of its original effective date, March 8, 2021, and remains in effect.

This means that until a new or revised rule comes out, employers should generally follow these federal independent contractor standards to determine if a worker is an independent contractor or an employee:

• Economic reality test. To determine whether workers are in business for themselves or are economically dependent on an employer for work.
• Core factors. Two “core factors” including:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Additional guidance. Three other factors act as additional guidance, particularly when the two core factors do not point to the same classification. The factors are:
  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.

FLSA: Employee vs. independent contractor

A worker’s classification as an employee or an independent contractor makes a significant difference when it comes to their rights under the FSLA.

The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour worked and overtime pay at not less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek. FLSA protections do not apply to independent contractors.