Department of Labor Is Changing Their Definition of Independent Contractor

The Department of Labor proposed a new rule for determining if workers are independent contractors under the Fair Labor Standards Act. Under FLSA, employees are entitled to minimum wage, overtime pay, and other benefits, which independent contractors are not. The proposed rule would rescind the rule that was put into place in 2021, which focused on two core factors that were given greater weight in every case (control over work and opportunity for profit or loss). The proposed rule would be a return to the economic reality test with no individual factors having a predetermined weight. It would look at the totality of the circumstances of the situation and consider the multiple factors to determine if the worker is dependent on the employer for work or is in business for themselves. The factors that the economic reality test would look at would be the following: opportunity for profit and loss depending on managerial skill, investments by the worker and employer, degree of permanence of the work relationship, nature and degree of control, extent to which the work performed is an integral part of the employer’s business, and skill and initiative. The proposed rule also states that additional factors may be relevant to making the determination. This new version of the rule likely leans more toward finding that a worker is an employee when compared to the prior rule.

The proposed rule was released on October 11, 2022. The public comment period ended on December 13th after being extended for 15 extra days by the Department of Labor at the request of several lawmakers and business groups. The proposed rule received over 55,000 comments during that time. With the comment period ended, the Department of Labor is likely in the process of reviewing the comments before they release the final rule. Regardless of what the final rule exactly looks like, it will likely have an impact on employers who make significant use of independent contractors. The final rule is expected to be issued by the Department of Labor sometime early this year.