DOL Proposes Changes to Worker Classification Rules

On October 13, 2022, the DOL released a Notice of Proposed Rulemaking that would guide employers in classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA). The FLSA governs minimum wage and overtime requirements that apply to employees but not independent contractors.

The proposed rules would rescind and replace the 2021 issued regulations and restore a “totality-of-the -circumstances” multi-factor economic realities test rather than the two factors test in the 2021 regulations in classifying a worker as an employee vs. independent contractor. A multi-factor economic realities test includes the following:

• The opportunity for profit or loss
• Investment
• Permanency
• The degree of control by the employer over the worker
• Whether the work is an integral part of the employer’s business
• Skill and initiative

According to the Notice of Proposed Rulemaking, ultimately, a worker who is economically dependent on the employer for work is deemed an employee, and those that are in business for themselves are independent contractors.

Although this is an employment law issue, worker status has benefits implications. Offering benefits to a worker that the employer wishes to classify as an independent contractor may be a factor in determining that the worker is actually an employee. Accordingly, employers who have contractor workers should be aware of this development and continue to familiarize themselves with state laws that may provide more stringent tests to determine whether a worker is an employee or an independent contractor. Employers should consult with employment law counsel for further information.

News Release »
Proposed Rule »