The U.S. Department of Labor (DOL) has issued a proposed rule to clarify the distinction between employees and independent contractors under the Fair Labor Standards Act (FLSA). The new rule would replace a 2021 rule in which two factors, i.e., control over the individual’s work and the worker’s opportunity for profit or loss, carried greater weight than other factors in making this distinction. Under the standard in the proposed rule, employers would use a totality of the circumstances analysis that gives no more weight to one factor over another.
The distinction between independent contractors and employees is critical, particularly among lower-paid workers. Misclassifying workers as independent contractors rather than employees deprives them of valuable rights under FLSA, including the right to overtime pay, minimum wage, and other benefits. On the other hand, independent contractors have no such rights, although they can work for multiple companies and set their own schedules.
The proposed rule points to the following factors to consider in performing the economic realities analysis to determine the status of a worker:
- The amount of skill required for the work;
- The degree of permanency of the working relationship;
- The worker’s investment in equipment or materials required for the task; and
- The extent to which the service rendered is an integral part of the employer’s business.
Notably, the DOL’s proposed rule does not go as far as some states in establishing an extremely pro-employee test, such as the “ABC test” used under California and Illinois law. The proposed rule could have the biggest effect on industries that rely heavily on “gig workers,” such as rideshare companies and delivery services. The rule could make it harder for these companies to classify their workers as independent contractors.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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