The Department of Labor (DOL) has released a proposed rule intending to update the requirements for employers to determine employee or independent contractor status under the Fair Labor Standards Act (FLSA). This determination is critical to assessing whether a worker is eligible to participate in—or sponsor—a retirement plan. According to a press release, the proposed rule would rescind the department’s 2024 final rule addressing the classification of independent contractors and replace it with an analysis for employee classification similar to the one adopted by the department in 2021. The proposed rule would do the following.

• Apply an “economic reality” test to determine whether a worker operates as an independent contractor or is economically dependent on an employer for work as an employee.
• Identify and explain two “core factors” to help determine whether a worker is economically dependent on an employer for work or operates as an independent business:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identify other factors to help determine a worker’s status as an employee or independent contractor, including the amount of skill required for the work, degree of permanence of the working relationship, and whether the work is part of an integrated unit of production.
• Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provide eight fact-specific examples applying the factors to real-life circumstances.

Comments must be received by April 28th.