DOL Issues Proposed Rule on IC vs EE!

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September 29, 2020

Employers need to keep abreast of the ever-changing agency rules regarding whether a worker is an “independent contractor” or an “employee.” You might ask, “why does this matter to the government?” The answer is easy: many government agencies—both state and federal—are designed solely to protect employees.  The U.S. Department of Labor (DOL), the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), and the Wisconsin Department of Workforce Development (which monitors unemployment insurance, workers compensation, and equal rights for employees) to name a few.  Because “employees” have these protections and “independent contractors” do not, our government is taking a close look at individuals who might be improperly classified.  The following is a proposed DOL rule to help simplify the analysis regarding who should be an “employee” for wage and hour laws.

The DOL issued a proposed rule on September 22, 2020 to provide clarity on whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).

The FLSA requires covered employers to pay nonexempt employees at least federal minimum wage for every hour worked and overtime pay for every hour worked over 40 hours in the workweek. A person who performs services for an individual or entity as an independent contractor is not an employee under the FLSA. Thus, the FLSA does not require such persons to pay an independent contractor minimum wage or overtime pay.

The proposed rule provides the DOL will adopt an “economic reality” test to determine a worker’s status under the FLSA. This test considers whether the worker is in business for himself or herself (independent contractor) or is economically dependent on the employer for work (employee). The rule provides two “core factors” in the analysis:

  1. The nature and degree of the worker’s control over the work; and
  2. The worker’s opportunity for profit or loss based on initiative and/or investment.

It also identifies three other factors that may serve as additional guidance:

  1. The amount of skill required for the work;
  2. The degree of permanence of the working relationship between the worker and the potential employer; and
  3. Whether the work is part of an integrated unit of production.

The core factors are entitled to greater weight in the analysis than the other factors. Further, the DOL noted that actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

The proposed rule has a 30 day comment period.  Click here to review the rule in full as published in the Federal Register.

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