On September 22, 2020, the United States Department of Labor (“DOL”) announced a proposed rule to clarify whether a worker is deemed an “employee” under the Fair Labor Standards Act (“FLSA”) or an “independent contractor.”
Under the proposed rule, the DOL would 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).
In making this determination, the DOL would identify two core factors:
- The nature and degree of the worker’s control over the work.
- The worker's opportunity for profit or loss based on initiative or investment.
The DOL would also identify three other factors that may serve as additional guides 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.
- Whether the work is part of an integrated unit of production.
The DOL noted that the two core factors are entitled to greater weight than the other factors.
The proposed rule offers clarity for classifying workers as independent contractors which would minimize employers’ risk of misclassification. The DOL is seeking public comment for 30 days on this proposal. We will continue to monitor developments and will keep you apprised of same.