Last month, the DOL issued a proposed rule addressing the status of whether a worker is an employee or independent contractor. As a reminder, unlike W-2 employees, independent contractors are not subject to the FLSA’s minimum wage, overtime compensation, and record-keeping requirements.

According to the DOL, the proposed regulations “would adopt general interpretations to which courts and the Department have long adhered” and are intended merely to clarify and sharpen the focus of the inquiry into a worker’s proper status. In other words, the proposed regulations are not groundbreaking or significant departure from current practice, but more of a formal clarification.

The key provisions of the proposed regulations include:

• Adopting a five-factor “economic realities” test to determine a worker’s status as employee or independent contractor, which considers whether a worker is in business for himself (independent contractor) or is economically dependent on the business/employer for work (employee).
   
• Identifying and explaining that there are two “core factors” in the economic realities test, which are more probative of the question of economic dependence or lack thereof and should be given greater weight in the analysis than other factors: (i) the nature and degree of the worker’s control over the work (greater control by the worker, as opposed to the business/employer, over key aspects of the performance of the work is indicative of independent contractor status); and (ii) the worker’s opportunity for profit or loss.
   
• Identifying three other factors that may serve as additional guideposts in the “economic realities” analysis: (iii) the amount of skill required for the work; (iv) the degree of permanence of the working relationship between the worker and the business/employer; and (v) whether the work is part of an integrated unit of production.
   
• Advising that the actual practice of the enterprise is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or independent contractor.

The DOL explains that if the two core factors (control and opportunity for profit or loss) both point towards the same worker status classification, their combined weight is substantially likely to outweigh the combined weight of other factors that may point towards the opposite classification. The relevance of the other three factors varies depending on the circumstances of each situation, and it is for that reason the economic realities test should be focused on the two core factors.

You can read the lengthy proposed rule here. It is open for public comment for 30 days (from publication on September 25), after which time the DOL will consider feedback and finalize the rule for enactment (anticipated by the end of 2020).

By Rebecca D. Bullard, rbullard@dsda.com