In latest edition of The Wright Toolbox:
- United States Department of Labor Issues Proposed Rule on Independent Contractor Status
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United States Department of Labor Issues Proposed Rule
on Independent Contractor Status
The United States Department of Labor has issued a proposed rule which would make it easier to establish independent contractor status under the Fair Labor Standards Act (“FLSA”). The FLSA is the federal law governing minimum wage and overtime. “Employees” are covered by the FLSA, while “independent contractors” are not. This distinction is becoming increasingly more significant in the era of the “gig” economy, where more workers are providing services upon their own terms.
Historically, DOL has used a 7-factor “economic realities test.” In the new proposed rule, the DOL has adopted a 5-factor economic reality test to determine whether the employee is in business for himself or economically dependent upon the alleged employer. Under this new proposed test, there are two “core” factors that are accorded more weight. According to the proposed regulation, if both of these core factors support independent contractor status, then there is a “substantial likelihood” that the individual is an independent contractor. The other three other factors serve as “guideposts.”
The first core factor is the “nature and degree over the worker’s control over the work.” Individuals who set their own schedule by selecting his or her own projects and have the ability to work for others, including the potential employer’s competitors, weighs in favor of independent contractor status. The proposed regulation specifically states that “control” does not include requiring the individual to comply with legal obligations, satisfy safety and health standards, meet contractually-controlled deadlines or quality control standards or other terms that are standard contractual terms between businesses.
The second core factor is the “individual’s opportunity for profit or loss” based upon his or her initiative or management of investment.
The three “guidepost” factors include the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production.
While this new rule proposed by the DOL should make a finding of independent contractor status easier for purposes of the FLSA, many other laws and agencies still apply more stringent tests. So, the DOL may regard a worker an independent contractor for purposes of FLSA enforcement, nevertheless several other enforcement agencies may still find employee status under the various tax and other laws that they are charged with enforcing.