DOL Releases Proposed Update on Independent Contractor Status

The United States Department of Labor (DOL) released a Notice of Proposed Rulemaking outlining the analysis for determining whether a worker is an independent contractor or an employee under the Fair Labor Standards Act (FLSA). The FLSA governs overtime and minimum wage requirements for employees. FLSA’s minimum wage and overtime requirements do not apply to independent contractors. The DOL’s focus is to ensure that employers do not misclassify FLSA-covered workers as independent contractors and evade their obligation to abide by FLSA requirements.

This proposed rule seeks to rescind the DOL’s retraction of the 2021 Independent Contractor Rule issued during President Trump’s presidency. In the proposed rule, the DOL seeks to restore the “economic realities” test where a worker’s classification is based on the “totality-of-the-circumstances” analysis of six factors: (1) the opportunity for profit or loss depending on managerial skill ; (2) investments by the worker and the employer; (3) the degree of permanence of the work relationship; (4) the nature and degree of control; (5) the extent to which the work performed is an integral part of the employer’s business; and (6) skill and initiative. Unlike the 2021 Independent Contractor Rule, which focused heavily on two “core” factors, the DOL proposes a balancing test where each factor is weighed equally, and not one is dispositive.

These changes may result in more workers being considered employees rather than independent contractors under the FLSA.

Individuals can submit written comments on this rule to the DOL’s Wage and Hour Division on or before November 28, 2022. In the meantime, there have been no official changes. Please contact the attorney you work with in our office to discuss any questions you may have on this update.