Independent contractor classification is a common issue for employers.
Now, the U.S. Department of Labor is pursuing changes to how individuals are classified as an employee or independent contractor under the Fair Labor Standards Act.
The Labor Department issued a notice of proposed rulemaking (NPRM) on October 11 with the goal of rescinding a 2021 rule with one that is more consistent with the FLSA as guided by longstanding judicial precedent. The Labor Department says its proposed rule would lessen the risk of employees being misclassified as independent contractors while providing added clarity for organizations that engage or want to work with people who are in business for themselves.
Key objectives of the Labor Department’s proposed rule include:
- Aligning the department’s approach with how courts interpret the FLSA and application of the economic reality test.
- Restoring the longstanding multifactor analysis that is used to determine whether a person is classified as an employee or an independent contractor under the FLSA.
- Ensuring all factors are analyzed without any predetermined weight being assigned to them based on any particular factor or set of facts.
- Returning to the longstanding interpretation of the factors pertaining to investment, control, profit or loss and whether the work is integral to the employer’s business.
A comment period on is open until December 13, 2022. The Labor Department announced on October 25 that the end of the comment period would be extended by 15 days instead of ending on November 28. More information about procedures for submitting comments is available online through Federalregister.gov. Any information or feedback will become part of the public record on this issue.
For now, the 2021 rule pertaining to independent contractor classification remains in effect. The factors pertaining to the level of control over the work and opportunity for profit or loss are weighted more heavily under the current rule than other factors. That has made it easier for employers to classify workers as contractors instead of employees.
Independent contractors are not afforded the same minimum wage and overtime protections that non-exempt employees are under the FLSA.
Experts say employers have long struggled making the distinction between an employee and an independent contractor classification due to varying standards and inconsistent application of determining factors by the courts and the Department of Labor.
Defining the relationship
Classification guidelines do tend to focus on the “economic reality” of the employer-individual relationship and are based on seven Labor Department factors:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship between the individual and the company.
- The amount of the contractor’s individual investment in facilities and equipment.
- The nature and degree of company control over the work performed.
- An individual’s opportunities for profit or loss.
- Skills and/or expertise required to perform the work.
- The degree of independent business organization and operation.
About us: As the Heartland’s leading employer services company, Syndeo partners with local business owners to help them minimize risk, improve efficiency and maximize profitability allowing them the freedom to focus on growth and fulfilling their mission. Syndeo fulfills its mission by taking on all of the HR responsibilities for our clients’ workforce, including employee relations, benefits, risk management and payroll.
~Josh Heck is Syndeo’s marketing manager. He can be reached at firstname.lastname@example.org or (316) 440-9940