Yesterday, the U.S. Department of Labor announced a proposed rule amending its regulations on how to determine whether a worker is an employee covered by the Fair Labor Standards Act or an independent contractor not covered by the FLSA. This proposed rule is significant because the FLSA lacks clear guidance on these important definitions, which has left employers struggling, scrambling, and risk-taking to properly classify workers for purposes of paying overtime and other wage/hour obligations.In this rulemaking, the DOL proposes to:
- Adopt an "economic reality" test to determine a worker's status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);
- Identify and explain 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. These factors help determine the economic realities if a worker is economically dependent on someone else's business or is in business for themselves; and
- Identify three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.
You can download the entire proposed rule here, and it is open for public comment for 30 days.
As explained by Wage and Hour Division Administrator Cheryl Stanton, "The rule we proposed today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers. The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility."
I could not agree more. These business-friendly rules would be a significant benefit to employers seeking guidance on a crucial issue that continues to be the focus on costly class action litigation nationwide.