Department of Labor Proposes New Independent Contractor Rule

The U.S. Department of Labor (DOL) has announced a proposed rule clarifying the definition of employee under the Fair Labor Standards Act (FLSA) as it relates to independent contractors.

In a press release, the DOL said its proposed rule:

• Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee);
• Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
• Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
• Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

NAHB has called on DOL to take steps to provide greater clarity to employers and workers in light of the often conflicting federal tests that exist to determine who is an employee and who is an independent contractor.

The proposed rule would also provide more clarity to shield more employers from misclassification claims, which occur when an employer incorrectly defines a worker as an independent contractor rather than an employee.

NAHB will review the rule in more detail once it is published in the Federal Register, and interested parties will have 30 days to submit comments.

For more information, contact David Jaffe.