Breaking News: U.S. Department of Labor Issues Formal Regulatory Proposal Meant to Simplify the Independent Contractor vs. Employee Analysis
September 22, 2020 by
As any business owner knows, wrestling with how to classify workers can be a challenging and stressful endeavor. Jurisdictional rules vary widely and the consequences for misclassification are even greater. Moreover, workers can be reclassified by governmental agencies or by court order, regardless of contract or clear agreement between the employer and worker.
- The Rule clarifies that independent contractors are not subject to provisions of the FLSA.
- An individual is an employee “if, as a matter of economic reality, the individual is economically dependent on that employer for work.”
- An individual is an independent contractor, as distinguished from an employee under the Act, if the individual is, as a matter of economic reality, in business for him- or herself.
The rule says there are 5 relevant factors in determining whether a worker is an employee versus an independent contractor, but the first 2 are “core factors” and the most probative:
- The nature and degree of the worker’s control over the work.
- The extent the individual has an opportunity to earn profits or incur losses based on his or her exercise of initiative.
- The amount of skill required for the work.
- The degree of permanence of the working relationship.
- Whether the worker’s work is a component of the potential employer’s integrated production process for a good or service.
Employers should welcome today’s news. The proposed regulations, should they become finalized, make it easier to evaluate whether a worker is an independent contractor or employee, and arguably easier to classify the worker as an independent contractor should the parties desire such an approach. Pitfalls remain, however, as some states’ laws are far more strict than federal law and should be followed in specific circumstances.