The U.S. Department of Labor is expected to issue a new rule later this year that will alter the framework employers use to determine if an individual is an employee or an independent contractor under the Fair Labor Standards Act.
The proposed rule broadly defines an employee as any individual whom an employer “suffers, permits or otherwise employs to work” and is intended to “encompass as employees all workers who, as a matter of economic reality, are economically dependent on an employer for work.” In contrast, an independent contractor is described as a worker who is “as a matter of economic reality, in business for themself.” In doing so, the proposed rule clarifies that “economic dependence does not focus on the amount of income earned, or whether the worker has other income streams.”
The test would include a non-exhaustive six-factor economic realities test with no one factor being conclusive. These 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 control
• Extent to which the work performed is an integral part of the employer’s business
• Skill and initiative
This proposed rule will likely have a significant impact on industries that rely on contract workers. Under the proposed rule, many independent contractors would likely need to be considered for reclassification as employees, which would financially impact employers by way of employment taxes and workers’ entitlement to overtime pay, benefits and other employer incurred costs.
