ShareLast week, the U.S. Department of Labor (DOL) issued a long-anticipated proposed rule in the Federal Register addressing when a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
In the proposed rule, the DOL retains its long-standing “economic reality” test. This multi-factor test helps determine whether a worker is in business for themselves or is economically dependent on an employer for work.
The DOL has never before issued regulations on independent contracting. Secretary of Labor Eugene Scalia was quoted as saying, “…our rule aims to simplify, clarify and harmonize principles the federal courts have espoused for decades when determining what workers are employees covered by the minimum wage and overtime pay requirements of the FLSA.”
The proposed rule would replace a current list of seven factors with two “core factors” and three “guidepost” factors for determining if the worker is economically dependent.
The first core factor in the proposed rule is the nature and degree of the worker’s control over the work. This factor favors the individual being an independent contractor to the extent that the individual, as opposed to the potential employer, exercises substantial control over key aspects of the performance of the work.
The second core factor combines the traditional opportunity for profit or loss factor with the worker’s investment factor. The DOL will analyze whether the worker has an opportunity for profit or loss based on either or both: (1) the exercise of personal initiative, including managerial skill or business acumen; and/or (2) the management of investments in, or capital expenditure on, for example, helpers, equipment, or material. Here, the DOL abandons the notion that investments made by an independent contractor must be similar in amount to that made by the company engaging them.
If the analysis of the “core” factors is not determinative or points in different directions, the DOL then would look to three “guidepost” factors: