On October 11, 2022, the U.S. Department of Labor (DOL) issued a proposed rule to help analyze whether a worker is an employee or independent contractor under the federal Fair Labor Standards Act (FLSA). The 2021 independent contractor guidelines used a five-factor test to determine classification with two of the factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss—as “core” factors weighted more heavily than the others.
Under the proposed rule, employers would consider a six-factor “economic realities” test, each weighted equally and including:
- Opportunity for profit or loss depending on managerial skill
- Investments by the worker and the employer
- Degree of permanence of the work relationship
- Nature and degree of control
- Extent to which the work performed is an integral part of the employer’s business
- Skill and initiative
According to the Department of Labor, the proposed rule would do the following:
- Align the department’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 factors. 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.
Additional information can be found here:
https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking