The U.S. Department of Labor on Sept. 22 announced a proposed rule clarifying the definition of an employee under the Fair Labor Standards Act as it relates to independent contractors.
The department’s proposed rule would adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test would consider whether a worker was in business for himself or herself (independent contractor) or was economically dependent on a putative employer for work (employee).
The proposed rule identifies and explains two “core factors”: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors would help determine if a worker was economically dependent on someone else’s business or was in business for himself or herself.
It also identifies three other factors that might serve as additional guideposts in the analysis: the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
The proposed rule advises that the 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.
Secretary of Labor Eugene Scalia said the proposed rule “aims to bring clarity and consistency to the determination” of independent contractor status under the FLSA.
The department’s Notice of Proposed Rulemaking will be available for review and public comment for 30 days after its publication in the Federal Register.