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New Proposed Rule for Classifying Employees and Independent Contractors under the FLSA

On October 13, 2022, the U.S. Department of Labor (the “DOL”) published a New Proposed Rule to assist employers in classifying workers as either employees or independent contractors under the Fair Labor Standards Act (the “FLSA”).  In a news release, the DOL states it believes the new proposed rule would preserve essential worker rights and provide consistency for regulated entities.  

If/when the proposed rule is finalized, it would rescind the 2021 independent contractor rule where two central factors carry the most weight in determining the status of independent contractors – control over the work and opportunity for profits/losses.  The 2021 rule, which is currently in effect, allows employers some leeway in classifying workers as independent contractors, rather than employees. 

While the proposed rule swings the pendulum towards a more pro-employee definition of employment, it is not a complete shift, as the test involves an assessment of multiple factors with equal weight given to each.

The proposed rule would align the DOL’s approach with the economic reality test.  The test involves an analysis of the totality of the circumstances.  Factors in the economic realities test may include:

  • The extent to which the service rendered is an integral part of the employer’s business.
  • The amount of skill required for the work.
  • The degree of permanence of the working relationship.
  • The worker’s investment in equipment or materials required for the task. 
  • The nature and degree of control over the work (including an additional analysis on this factor).
  • The opportunity for profits/losses.

The DOL’s Wage and Hour Division will be accepting public comments on the proposed rule for forty-five (45) days after publication. 

If/when this proposed rule is finalized, it may greatly impact employers.  The effect of the rule could mean that some employers may have a harder time classifying workers as independent contractors.  In order to avoid misclassification of workers, it is important for all employers to be cautious.  Awareness of the different tests for classifying workers under the different laws is key.   

If you have any questions or concerns regarding the proposed rule on independent contractor status, please contact Joel Aziere at jaziere@buelowvetter.com or (262) 364-0250, Dan Vliet at dvliet@buelowvetter.com or (262) 364-0259, Kirstin Mathers at kmathers@buelowvetter.com or (262) 364-0251, or your Buelow Vetter attorney.

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