In January 2021, the U.S. Department of Labor (DOL) under the Trump administration issued a final rule defining the standard for when a worker is an independent contractor for the purposes of the Fair Labor Standards Act (FLSA). This standard remains in effect, although the DOL under the Biden administration issued a new proposed rule redefining the standard in October 2022.
According to House Republican leadership, the Biden administration may not be enforcing the current independent contractor rule. Recently, Republican leaders asked acting DOL Secretary Julie Su why the DOL has the proposed rule involving the independent contractor standard posted on its website rather than the current final rule. They characterized their inquiry as oversight of the DOL’s worker classification enforcement under the FLSA.
The January 2021 Independent Contractor Final Rule
Under the January 2021 final rule, two major factors determine if a worker is an independent contractor: the worker’s control over individual work and the worker’s opportunity for profit or loss. If these factors are unclear, the rule provides for consideration of the following additional factors:
- The amount of specialized skill required for the work that the potential employer does not provide;
- The degree of permanence of the working relationship, focusing on the continuity and duration of the relationship and weighing toward independent contractor status if the relationship is definite in duration or sporadic; and
- Whether the work performed is part of an integrated unit of production.
The October 2022 Independent Contractor Proposed Rule
The DOL’s October 2022 proposed rule focuses on multiple factors instead of emphasizing those outlined in the current final rule. The weight given to each factor depends on the facts of each case rather than being predetermined, as in the existing rule.
The 2021 rule generally makes it easier for employers to classify workers as independent contractors. It is a more straightforward standard for employers, especially smaller businesses. Typically, this classification benefits employers and businesses, as independent contractors are ineligible for basic protections under FLSA, such as minimum wage, overtime pay, and other benefits. On the other hand, independent contractors have more flexibility in scheduling and working for multiple companies, which employees expect in today’s modern economy.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.