DOL announces proposed rule for classifying employees, independent contractors

On October 11, 2022, the U.S. Department of Labor (DOL) announced the publication of a proposed rule to revise DOL guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).

The proposed rule will be published in the Federal Register on October 13. A comment period will allow all interested parties an opportunity to review the proposal and provide formal written comments. The deadline to submit comments is November 28, 2022.

The DOL states that the proposed rule would do the following:

• Align the DOL’s approach with courts’ FLSA interpretation and the economic reality test.
• Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
• Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
• Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control, and opportunity for profit or loss. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
• Assist with the proper classification of employees and independent contractors under the FLSA.
• Rescind the 2021 Independent Contractor Rule.

Background

On March 14, 2022, a federal judge in the U.S. District Court for the Eastern District of Texas reinstated the previous independent contractor rule under the FLSA. The court determined that the prior administration’s rule took effect as of its original effective date, March 8, 2021, and remains in effect.

During the summer of 2022, the DOL held public forums and considered stakeholder feedback prior to the publication of this current proposed rule.

FLSA: Employee vs. independent contractor

A worker’s classification as an employee or an independent contractor makes a significant difference when it comes to their rights under the FSLA.

The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour worked and overtime pay at not less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek. FLSA protections do not apply to independent contractors.

The bottom line

Employers should evaluate their processes for classifying employees and independent contractors to prepare for any potential regulatory changes that come as a result of this proposed rule.