Department of Labor Proposes New Independent Contractor Rules Under the FLSA

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Inside HR
Employee & Labor Relations

On October 13, 2022, the U.S. Department of Labor (DOL) published a notice of proposed rulemaking that would again alter the definition of and requirements for classifying independent contractors under the Fair Labor Standards Act (FLSA). It should be noted that the proposed rules address only the classification under the FLSA and not any other statute (such as the IRS’s definition related to taxation).

During the Trump administration, the guidance for determining if a worker should be classified as an independent contractor (aka, 2021 Independent Contractor Rule) was modified to give two components (core factors) greater weight in determining independent contractor status: the nature and degree of control over the work and the worker’s opportunity for profit or loss. This also made the classification of workers as independent contractors easier for businesses. The DOL has stated the proposed rule will be more consistent with longstanding judicial precedent, relying on the “totality-of-the-circumstances” test that considers a variety of factors.

Under the proposed rule, the DOL intends to move to a definition that is close to the pre-2021 rule, by no longer assigning more “weight” to any particular factor when analyzing the relationship. The multifactor test includes:

  1. The opportunity for profit or loss, depending on managerial skill,
  2. investments by the worker and the employer,
  3. degree of permanence of the work relationship,
  4. the nature and degree of control,
  5. the extent to which the work performed is an integral part of the employer’s business, and
  6. the skill and initiative of the individual.

Additional factors may also be considered if they indicate whether the workers are in business for themselves.

Employers may want to begin a review of their independent contractors, to determine if the relationship meets the requirements of the proposed rule or if any changes are necessary. In addition to reclassification, employers may also face changes to tax liabilities, reporting requirements, benefits, workers’ compensation, union representation, and other protections.

The proposed rule is subject to public comment, which the DOL is required to review and consider in fashioning a final rule. Written comments are to be submitted on or before November 28, 2022, identified by Regulation Identifier Number (RIN) 1235-AA43 and sent as follows:

  • Electronic Comments: Submit comments through the Federal eRulemaking Portal at https://www.regulations.gov. Follow the instructions for submitting comments.
  • Mail: Address written submissions to Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210.

Based on this schedule, a final determination on the proposal is expected by year-end or early 2023, with final changes on the implementation to follow. MRA will continue to monitor the Department of Labor for developments and provide updates as available.

For questions about the proposed rule, or other questions regarding independent contractor status, contact the MRA 24/7 HR Hotline at 866-HR-Hotline (866.474.6854) or InfoNow@mranet.org.

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