DOL to Clarify Employee or Independent Contractor Status

September 23, 2020 – The Department of Labor (DOL) Wage and Hour Division has issued a news release and a notice of proposed rulemaking, the latter of which the agency states is intended to clarify “the definition of ‘employee’ under the Fair Labor Standards Act (FLSA) as it relates to independent contractors.” The DOL sees this action as streamlining and providing consistency to the process by which a worker’s status is determined to be that of an “employee” or an “independent contractor.” This determination is of both regulatory compliance importance and worker tax status.

The proposed rule employs an “economic reality” test, which considers whether a worker is in business for himself or is economically dependent on an employing entity. It also considers the degree of control an individual has over his work, and the opportunity for individual profit or loss.

The proposed rule takes into account skills required, permanence of relationship, and the degree to which an individual’s output is integrated into other elements of the enterprise’s products or services. It also advises that actual work practices are of greater significance than a contractual arrangement when determining “employee” or “independent contractor” status.

Public comments will be accepted for a 30-day period beginning when the notice of proposed rulemaking is published in the Federal Register.