Employee or Independent Contractor? U.S. Department of Labor Proposes Changes to Rule on Classifying Workers

The U.S. Department of Labor has announced a new proposed rule that may make it more difficult for employers to classify workers as independent contractors under the Fair Labor Standards Act (FLSA). The proposed rule seeks to rescind the generally employer-friendly test implemented by the 2021 Independent Contractor Rule and replace it with a more pro-employee approach.

The 2021 Rule, which remains in effect, focuses on the “economic reality” of the relationship between the employer and the individual worker and emphasizes two “core factors” – the worker’s control over their work and the opportunity for profit or loss – that carry the most weight in the analysis. The proposed rule would shift the consideration to a “totality of the circumstances” approach with a six-factor test, in which all factors are analyzed, and none have a predetermined weight. The practical effect of the proposed changes will be that many workers previously classified as independent contractors are likely to be reclassified as employees. Changes in classification could increase business costs because, unlike independent contractors, workers classified as employees are entitled to various benefits under the FLSA, including minimum wage and overtime pay.

The notice-and-comment phase for the DOL’s proposed rule ends on December 13, 2022, and any new final rule will go into effect next year. In the meantime, it is a good idea for employers to evaluate how the proposed rule changes may affect their business operations.

If you have questions about the proposed rule, the classification of independent contractors, or any aspect of workplace law, please contact one of the labor and employment attorneys at Barnwell Whaley.