All Things Newz
Law \ Legal

U.S. Department Of Labor Issues Proposed Rule On Independent Contractors – Employee Benefits & Compensation


To print this article, all you need is to be registered or login on

The U.S. Department of Labor (DOL) has issued a proposed
rule1 that modifies the legal framework for determining
whether a worker is an employee or independent contractor under the
Fair Labor Standards Act (FLSA).

The proposed rule would rescind the current independent
contractor rule2 (adopted by the Trump Administration in
2021), which simplified the multi-factor test, and heavily weighted
two “core” factors – workers’ control over
their work and opportunity for profit or loss – in
determining the status of workers. The new rule returns to a
“totality-of-the-circumstances” analysis, which balances
all factors equally. While the current rule is perceived as more
favorable to respecting a worker’s independent contractor
status, this shift in legal framework is expected to lead to more
determinations that workers are employees, most particularly, gig


The proposed rule broadly defines an “employee” as any
individual whom an employer “suffers, permits, or otherwise
employs to work” and is intended to “encompass as
employees all workers who, as a matter of economic reality, are
economically dependent on an employer for work.”

In contrast, an “independent contractor” is a worker
who is, “as a matter of economic reality, in business for
themself.” In doing so, the proposed rule clarifies that
“[e]conomic dependence does not focus on the amount of income
earned, or whether the worker has other income streams.”

“Totality-of-the-Circumstances” Analysis

The proposed rule would establish a nonexhaustive six-factor
economic realities test; no one factor is dispositive. The factors

1. “Opportunity for profit or loss depending on
managerial skill.”
This factor considers whether the
worker exercises managerial skill that affects the worker’s
economic success or failure in performing the work.

The following facts, among others, may be relevant:

  • Whether the worker determines or can meaningfully negotiate the
    charge or pay for the work provided;

  • Whether the worker accepts or declines jobs or chooses the
    order and/or time in which the jobs are performed;

  • Whether the worker engages in marketing, advertising, or other
    eff orts to expand their business or secure more work; and

  • Whether the worker makes decisions to hire others, purchase
    materials and equipment, and/or rent space.

If a worker has no opportunity for a profit or loss, then this
factor suggests that the worker is an employee. Some decisions that
affect the amount of pay a worker receives, such as working more
hours or taking more jobs, are not indicators of exercising
managerial skill under this factor.

2. “Investments by the worker and the
This factor examines whether a worker’s
investment is “capital or entrepreneurial in nature.” It
also clarifies that costs borne by a worker to perform a job (e.g.,
tools and equipment) are not evidence of capital and
entrepreneurial but instead indicate employee status.

Additionally, a worker’s investment should be considered on
a relative basis with the company’s investment in its overall

3. “Degree of permanence of the work
This factor weighs in favor of the worker
being an employee when the work relationship is “indefinite in
duration or continuous,” which is usually the case in
exclusive working relationships. A work relationship that is
definite in duration, non-exclusive, project-based, or sporadic, is
evidence of independent contractor status. Seasonal or temporary
nature of work or unique operational characteristics to certain
industries alone are not, however, indicative of independent
contractor status.

4. “Nature and degree of control.” This
factor examines the company’s control, including reserved
control, over the performance of the work and the economic aspects
of the working relationship. Facts relevant to the company’s
control over the worker include whether the it sets the
worker’s schedule, supervises the performance of the work, or
explicitly limits the worker’s ability to work for others.

Additionally, facts relevant to the company’s control over
the worker include whether the it uses technological means of
supervision (such as by means of a device or electronically),
reserves the right to supervise or discipline workers, or places
demands on workers’ time that do not allow them to work for
others or work when they choose.

Whether the company controls economic aspects of the working
relationship should also be considered, including control over
prices or rates for services and the marketing of the services or
products provided by the worker. Control implemented by the company
for purposes of complying with legal obligations, safety standards,
or contractual or customer service standards may be indicative of
control. More indicia of control by the company favors employee
status; more indicia of control by the worker favors independent
contractor status.

5. “Extent to which the work performed is an integral
part of the employer’s business.”
This factor
considers whether the work performed is an integral part of the
company’s business. It does not depend on whether any
individual worker in particular is an integral part of the
business, but rather whether the function they perform is an
integral part.

This factor weighs in favor of the worker being an independent
contractor when the work they perform is not critical, necessary,
or central to the company’s principal business.

6. “Skill and initiative.” This factor
examines whether the worker uses specialized skills to perform the
work and whether those skills contribute to business-like
initiative. Employee status is evidenced by a worker not using
specialized skills in performing the work or a worker depending on
training from the company to perform the work.

Where the worker brings specialized skills to the work
relationship, it is the worker’s use of those specialized
skills in connection with business-like initiative that indicates
that the worker is an independent contractor.

Bottom Line

The DOL’s proposed rule, if enacted in its current form,
will likely have a significant impact on industries that rely on
contract workers, particularly ride-share and food delivery
companies. Under the proposed rule, many independent contractors
would likely need to be considered for reclassification as
employees, which would financially impact employers by way of
employment taxes and workers’ entitlement to overtime pay,
benefits, etc.




Originally Published by Employee Benefit Plan Review,
February 2023, Volume 77, Number 2, pages 17–18

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Employment and HR from United States

SECURE 2.0 – Changes For Retirement Plans

Mayer Brown

With just days to go before the new year, President Biden signed the Consolidated Appropriations Act, 2023, into law on December 29, 2022, which includes the SECURE 2.0 Act of 2022…


Source link

Related posts

Fazla Çalişma, Ulusal Bayram Ve Genel Tatil Günlerinde Çalışma – Employee Benefits & Compensation

The Economy: Ten Key Questions On Supply Chain Disruption (Video) – Financial Restructuring

Conditions For The Enforcement Of Foreign Judgments In Egypt – Trials & Appeals & Compensation