One of the most common wage and hour violations by employers is misclassifying employees as independent contractors. Whether it’s done intentionally or unintentionally, misclassifying someone as an independent contractor can cost them income, benefits and legal protections.
The rules for classifying workers under the Fair Labor Standards Act (FLSA) can be confusing. It doesn’t help that they can change with each administration, as they did under the last one. The U.S. Department of Labor (DOL) issued a final rule that used an “economic-reality test” to determine whether a worker has their own business or is economically dependent on a company.
Change would restore multifactor analysis
This month, the DOL published a Notice of Proposed Rulemaking that, if approved, would be “more consistent with longstanding judicial precedent on which employers have relied….” The proposed rule would make a number of changes.
Most notably, it would restore the multifactor analysis to determine whether a person meets the FLSA’s definition of an employee or an independent contractor. The factors, which would be considered equally, would include things like “investment, control and opportunity for profit or loss” for a worker as well as “whether the work is integral to the employer’s business” and how much control an employer has over a worker.
Proposed rule already getting pushback
The new rule, if it goes into effect, would replace the current 2021 Independent Contractor Rule. The proposed rule is open for public comment until the end of November. Not surprisingly, a number of organizations have already spoken out against it for limiting employers’ ability to use independent contractors. Some say it limits people’s ability to work as independent contractors if they choose.
Secretary of Labor Marty Walsh, in addressing the proposed rule, says that DOL’s goals are to tackle the widespread misclassification problem that harms “our nation’s most vulnerable workers.” However, the DOL notes that it would also “provide consistency for regulated entities.”
It’s crucial for employers to keep an eye on what happens with this potential change to the FLSA to avoid unnecessary and costly issues. Having sound legal guidance if you have questions or encounter a problem is always wise.