On September 22, 2020, the federal Department of Labor (DOL) proposed a new rule that would provide a test for determining whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor.
The FLSA is a federal law that sets things like minimum wage, overtime pay, recordkeeping, and child labor standards affecting workers in the private companies and governments.
This new rule is supposed to:
- Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. According to the DOL, the test considers whether a worker is in business for himself (e.g., as an independent contractor) or is economically dependent on the employer for work (which would make him an employee);
- Explain the so-called core factors which are (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based on his initiative and/or investment. The DOL believes that these factors help determine if a worker is economically dependent on someone else’s business or is in business for himself;
- Identify three other factors that can serve as additional guidance when analyzing the worker’s status, and those factors are (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production; and
- Advise 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.
This proposed rule bears a striking similarity to the test used by the New York State Department of Labor when it determines whether a worker is an independent contractor or employee. Employers are well-advised to understand these standards and to conduct their business accordingly.
For counsel on this and other employment matters, the team at The Coppola Firm is available to help. Call us.