Labor Department Proposes New Rulemaking for Determining Independent Contractor Status

On Oct. 13, the U.S. Department of Labor (DOL) will issue a proposed rule changing its process for classifying workers as employees rather than as independent contractors under the Fair Labor Standards Act (FLSA).

The proposed rule seeks to determine whether a worker is economically dependent on the employer or truly in business for himself or herself by using a revised “economic reality test,” which consists of six factors, including the following:

• Is the work performed an integral part of the employer’s business?
• Does the worker’s managerial skill affect the worker’s opportunity for profit or less?
• Is the relationship between the worker and employer permanent or indefinite?
• What is the nature and degree of the employer’s control?
• Does the worker use specialized skills to perform the work, and do those skills contribute to business-like initiative?
• Are investments by a worker capital or entrepreneurial in nature?

The DOL said the proposed rule would “combat employee misclassification,” which occurs when an employer incorrectly defines a worker as an independent contractor rather than an employee.

“[Employee] misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” said Labor Secretary Marty Walsh.

As part of this proposed rule, the Labor Department would formally rescind the NAHB-supported independent contractor rule currently in place, which gives greater weight to two factors in determining whether a worker is an employee or independent contractor, even if other factors are relevant — the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss.

NAHB is currently analyzing the contents of the proposed rule and assessing its impact on residential construction, and will submit comments in response to DOL before the Nov. 28 deadline.