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United States Department of Labor Proposes New Rule to Help Determine Independent Contractor Status

By: Cristina N. Hyde, JD

Last week, the Wage and Hour Division of the United States Department of Labor (DOL) issued a proposed a new rule meant to modify the existing regulations governing the classification of workers as either independent contractors or employees under the Fair Labor Standards Act (FLSA).

The distinction between the two classifications is important for determining whether or not a worker is entitled to the protections of the FLSA including, those related to minimum wage and overtime pay and retaliatory or discriminatory employment action.  Defined within the context of the proposal as a worker who is not economically dependent on their employer for work and is in business for themselves, a self-employed individual, also known as an independent contractor, or “freelancer,” does not fall within the scope of the FLSA.  Thus, determining whether an employment relationship exists under the FLSA has become a thorny issue and the subject of decades of judicial precedent.

Until recently, in order to make the freelancer/employee determination, courts had applied a “totality of the circumstances” test.  However, in 2021 the DOL published new rules which departed from case law in several ways and included the identification of five specific factors for consideration and the assignment of more influence to two of those factors than the rest.

Recognizing the confusion, caused by the 2021 change, last week’s rule proposal seeks to bring the analysis back into line with its  traditional “totality of the circumstances,” roots.  In so doing, the DOL explained that this will provide more consistent guidance to employers and protect workers from misclassification while also recognizing the important role independent contractors play in the country’s economy.

The comment period for the new proposed rule is currently open. Interested individuals may submit written comments on or before November 28, 2022, either electronically through the Federal eRulemaking portal or in writing to the Wage and Hour Division of the United States Department of Labor.

If you have questions regarding your small business, your workers’ employment classification status or have independent contractor or freelancer arrangements you would like to review, do not hesitate to Contact Us.

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