DOL Proposes Rule to Clarify the Definition of an Independent Contractor

Independent contractor or employee? The U.S. Department of Labor wants to simplify that question.

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The Department of Labor recently announced a rule proposal that would clarify the definition of an independent contractor.

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The proposed rule would, among other things, adopt an “economic reality” test to determine a worker’s status. The test would consider whether a worker is in business for themselves (making them an independent contractor) or is economically dependent on an employer (making them an employee).

“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” said Secretary of Labor Eugene Scalia. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

The proposed rule also spells out how the worker’s control over their work and their “opportunity for profit or loss based on initiative and or/investment” can be used to determine independent contractor or employee status.

Three other factors in the proposal might serve as guideposts in analyzing worker status:

  • The amount of skill required for the work;
  • The degree of permanence of the working relationship between the worker and potential employer;
  • Whether the work is part of an integrated unit of production.

“The rule we proposed today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers,” said Cheryl Stanton, an administrator for the DoL. “The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”

The proposed rule is open for review and public comments through October 26.