The U.S. Department of Labor has issued a proposed rule aimed at clarifying the determination of an employee vs. an independent contractor under the Fair Labor Standards Act.
The proposed rule (29 CFR Parts, 780, 788, and 795):
- Adopts an “economic reality” test that considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee).
- Identifies and explains two “core factors,” – the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself.
- Identifies three other factors that may provide additional guidance in the analysis. They include the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
- Advises that the actual practice is more relevant than what was contractually agreed to or theoretically possible in determining whether a worker is an employee or an independent contractor.
The determination of who is an independent contractor under the Fair Labor Standards Act would not override stricter independent contractor classification legislation enacted at the state level.
Comments on the proposed rule must be submitted on or before Oct. 26 to be considered, as the intent is to adopt a final rule before the end of 2020.