The U.S. Department of Labor issued a proposed rule creating a new framework for determining if a worker is an employee or an independent contractor. Since independent contractors are not employees, they are not subject to the requirements of the Fair Labor Standards Act (FLSA) and therefore are not required to be offered overtime or paid minimum wage.
The Proposed Rule adopts an “economic realities” test for determining independent contractor status. An individual can be considered an independent contractor if the individual truly operates their own independent business that is not economically dependent on the employer.
The Department of Labor gives more weight to two core factors to determine employment status:
- The nature and degree of the employer’s control over the work; and
- The worker’s opportunity for profit or loss based on personal initiative or investment in the work.
If these factors are in conflict or do not provide a clear answer, the DoL will consider the following secondary factors:
- The amount of skill required in the work;
- The degree of permanence in the relationship; and
- If the work is part of a unit of production.
The guidance provides employers with clearer direction on how to classify workers. Employers who have a gig workforce or who have workers who are not employees should review the guidance and look to see if changes are made before it is finalized.
