The US Department of Labor (DOL) recently proposed a rule to provide employers with some much-needed guidance as to whether they should classify their workers as “employees” or an “independent contractors.” Historically, many different, and sometimes conflicting tests, have been utilized to determine whether a worker qualifies as an independent worker, and some states have passed their own laws on this issue. Inconsistent state laws can make it difficult for companies that operate in different states to know how to classify their workers. The DOL has sought to remedy this confusion with its proposed rule, which the DOL intends to be the “sole and authoritative interpretation of independent contractor status under the [Fair Labor Standards Act].”
The DOL’s proposed rule adopts the “Economic Realities” test, which looks to two “core factors”:
- The nature and degree of the individual’s control over the work; and
- The individual’s opportunity for profit or loss.
The greater the control the employer has over the worker, as well as the smaller the worker’s opportunity for profit or loss, the more likely it is that the worker should be classified as an independent contractor. In addition to these two factors, the DOL’s proposed rule looks to additional factors such as:
- The amount of skill required for the work;
- The degree of permanence in the working relationship; and
- Whether the work is part of an integrated unit of production.
The proposed rule makes it clear that the language of the contractual agreement does not determine a worker’s classification. Rather, this is to be determined by how the Economic Realities test plays out in actual practice.
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