The U.S. Department of Labor (DOL) proposed a rule that would modify how to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) [87 F.R. 62218, 10-13-22]. The proposed rule would also formally rescind the 2021 rule, which was issued on January 7, 2021 (86 F.R. 1168, 1-7-21).
What the Proposed Rule Would Do
The DOL said it is proposing the rule so the regulations are more consistent with judicial precedent and the FLSA’s text and purpose. The proposed rule focuses on:
- A totality-of-the-circumstances analysis of the economic reality test rather than using “core factors.” The analysis focuses on whether each factor shows the worker is economically dependent upon the employer for work versus being in business for themselves. The proposed rule does not use predetermined weighting of factors and considers the factors together instead of as discrete and unrelated.
- Returning the consideration of investment to a standalone factor by focusing on whether the worker’s investment is capital or entrepreneurial in nature. It also considers the worker’s investments on a relative basis with the employer’s investment.
- Providing additional analysis of the control factor, including detailed discussions of how scheduling, supervision, price-setting, and the ability to work for others should be considered when analyzing the degree of control over a worker. The proposed rule does not limit “control” to control that is actually exerted.
- Returning to the longstanding DOL interpretation of the integral factor, which considers whether the work is integral to the employer’s business rather than whether it is exclusively 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
Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.
