On February 27, the U.S. Department of Labor (DOL) issued a proposed rule that would modify how to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA) [91 F.R. 9932, 2-27-26].
The proposed rule would rescind the DOL’s worker classification rule issued in 2024 and would replace it with a rule similar to the DOL’s rule that was issued in 2021 with a few modifications. The 2024 final rule set forth an analysis for determining employee or independent contractor status that relied on a “totality-of-the-circumstances” analysis of the economic reality test rather than using the “core factors” from the 2021 rule.
The Two Main Core Factors
The economic reality test requires that certain factors be analyzed to show whether a worker is economically dependent upon the employer for work versus being in business for themselves. The economic reality factors are not exhaustive, and no single factor is determinative.
The proposed rule identifies two core factors that employers should consider first when determining a worker’s status:
Additional factors are included in the proposed rule that should be given less weight in the analysis, including: the amount of skill required for the work; the degree of permanence of the working relationship; and whether the work is part of an integrated unit of production.
To learn more about federal and state laws, regulations, and information to keep your company’s payroll operations in compliance, check out Payroll Source Plus!
Rayna Alexander, Esq., is Editor of Payroll Information Resources for PayrollOrg.