US Labor Department to Change Independent Contractor Rules
On September 25, 2020, the US Department of Labor’s Wage Hour Division issued a proposed rule clarifying the definition of “employee” for purposes of the Fair Labor Standards Act (FLSA), which governs wage/hour laws as well as child labor regulations. The proposed rule and comments to date can be viewed at https://www.federalregister.gov/documents/2020/09/25/2020-21018/independent-contractor-status-under-the-fair-labor-standards-act.
The WHD changes relate to which workers can be deemed “independent contractors” and as such exempt from the payroll requirements for the host employer. The agency press release said that, once finalized, the rule will make it easier to identify employees subject to the protections of the FLSA (e.g., overtime pay) “while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”
The primary change from current FLSA criteria is the proposed adoption of an “economic reality” test to determine a worker’s status, and this test would consider whether the worker is in business for themselves (independent contractor, under this test), or whether they are “economically dependent” on a “putative employer” for worker (employee under this test).
The proposed rule also discusses two “core factors” – 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. There are three other factors that would be considered in legally distinguishing the two classes of workers: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production. Finally, the proposed rule advises that “actual practice” will be viewed as more relevant than what might be contractually or theoretically possible in viewing the relationship.
There is a 30-day comment period (ending October 26, 2020) for the Notice of Proposed Rulemaking, and comments can be submitted through Regulations.gov to the DOL Wage Hour Division Docket at the link above. The changes to employee and independent contractor definitions may also have implications for enforcement by OSHA and MSHA in the future. For assistance on employment law issues, contact the Law Office at 301-595-3520.