Last month, the U.S. Department of Labor published a proposed rule to modify the federal guidelines for determining how to properly classify an individual as an independent contractor or employee under the Fair Labor Standards Act. Under current guidance published on January 7, 2021, employers are directed to consider the following five factors to determine independent contractor status:
- The nature and degree of control by the employer over the individual’s work;
- The individual’s opportunity for profit or loss;
- The degree of permanency in the working relationship;
- Whether the work performed is an integral part of the employer’s business; and
- Whether specialized training or skill is required to perform the work.
The first two factors (control and opportunity for profit or loss) are designated “core factors” and carry greater weight. If these two core factors point toward the same classification, there is a “substantial likelihood that it is the individual’s accurate classification.”
The DOL’s proposed rule released in October 2022 would no longer give greater weight to any of these “economic reality” factors. Instead, employers would be required to consider all factors and use a “totality-of-the-circumstances” approach to determine whether an individual should be classified as an employee or independent contractor. All factors would be considered in view of the economic reality of the whole activity. In addition, employers would be required to analyze how scheduling, supervision, price-setting, and the ability to work for others impacts the control an individual maintains over their work when deciding whether the “control” factor tips in favor of independent contractor or employee status.
The period for submitting comments to the DOL about the proposed rule ends on November 28, 2022. Once comments are reviewed, employers should keep an eye out for the DOL repealing the January 7, 2021 rule and adopting a new version of the regulation.
