The U.S. Department of Labor (DOL) announced a proposed rule that would rescind the department’s 2024 final independent contractor rule and replace it with an analysis for employee classification under the Fair Labor Standards Act (FLSA) similar to the one adopted by the DOL in 2021.
The proposed rule would:
- Apply an economic reality test to determine whether a worker is in business for themself as an independent contractor or an employee economically dependent on an employer.
- Identify and explain two core factors to help determine if a worker is economically dependent on an employer for work or in business for themself:
- The nature and degree of control over the work
- The worker’s opportunity for profit or loss is based on initiative and/or investment
- Identify other factors to help determine a worker’s status as an employee or independent contractor, including:
- The amount of skill required for the work
- The degree of permanence of the working relationship
- Whether the work is part of an integrated unit of production
- Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
- Provide eight fact-specific examples applying the factors to real-life circumstances.
The proposed rule was published in the Federal Register on Feb. 27, and the DOL’s public comment period ends on April 28.
Employers should monitor updates on the proposed rule, including the publication of a final rule and any related legal challenges. If the final rule takes effect, employers may consider modifying existing practices and policies to comply with the new standard for employee classification under the FLSA.
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