U.S. Department of Labor Proposes Rule Changes on the Classification of Independent Contractors

Date: October 14, 2022

On October 13th, the Department of Labor issued a proposed rule to change who can be considered an independent contractor under the Fair Labor Standards Act (FLSA). The proposed rule change would rescind a previous independent contractor rule from the Trump administration. The DOL cites employee misclassification as the reason for the rule, stating “misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.”

The proposed rule will not only attempt to realign the DOL’s approach with the Courts’ FLSA interpretation and the economic reality test, but also restore the multifactor, totality-of-the-circumstance analysis when determining an individual’s independent contractor status. The rule will also aim to ensure that all factors pertaining to one’s independent contractor status are analyzed without a predetermined weight to individual factors. Overall, this will lead back to the longstanding interpretation of economic reality factors. The economic reality factors are:

  • 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 ControlExtent to Which the Work Performed is an Integral Part of the Employer’s Business
  • Skill and Initiative

Further details on each factor can be found here.

NFIB opposes the proposed rule due to the negative impact it will have on small businesses. Beth Milito, Executive Director of the NFIB Small Business Legal Center, provided these comments on the proposed rule:

“Small business owners need clarity for determining who is and isn’t considered an independent contractor under the Fair Labor Standards Act. The current rule has transparent standards for classifying employees and independent contractors, something NFIB has long advocated for. Unfortunately, the Department of Labor’s new proposed rule will complicate the current standards and ultimately lead to frivolous litigation and increased costs for small businesses. NFIB opposes the proposed rule and changes to the independent contractor standard.”

For additional questions, reach out to NFIB’s Small Business Center directly at 202-314-2070 or [email protected]

October 14, 2022

 

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