The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting most full-time and part-time workers in the private sector and in federal, state, and local governments. The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting most full-time and part-time workers in the private sector and in federal, state, and local governments. This law, passed in 1938, generally requires that covered employers pay nonexempt employees at least the Federal minimum wage for every hour worked, and at least one and one-half times the employee's regular rate of pay for all hours worked beyond 40 in a workweek.
Department of Labor Propose Rule Change For Deciding if a Worker is an Employee or and Independent Contractor
The issue of whether a worker should be classified as independent contractor or an employee has taken on increased significance because of the gig economy. In mid-October, the Department of Labor unveiled a new proposed rule that could change how workers are classified as employees or as independent contractors under the Act. Worker classification under the FLSA is important because independent contractors are not subject to the minimum wage and overtime requirements of the FLSA. While independent contractors are a key component of the economy, the courts and the DOL have often been inconsistent in determining how to classify workers.
The proposed new rule would focus the analysis of whether a worker is an employee of a business for purposes of the FLSA on a “totality-of-the-circumstances” standard. Under this proposed rule change, the review of a worker’s status should focus on six main factors:
(1) the “opportunity for profit or loss depending on managerial skill”;
(2) “investments by the worker and the employer”;
(3) “degree of permanence of the work relationship”;
(4) “nature and degree of control,” including “whether the employer 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”;
(5) the “extent to which the work performed is an integral part of the employer’s business”; and
(6) the “skill and initiative” of workers, referring to whether a worker uses specialized skills brought to the job or is “dependent on training from the employer to perform the work.”
The proposed rule also states that “additional factors may be relevant” in the analysis.
The DOL acknowledges that independent contractors and small businesses play an important role in the economy, but the proposed rule is meant to “reduce the risk that employees are misclassified as independent contractors” and denied the right to wage protections required under the law.
What Happens Now?
The proposed rule is just that—a proposal. Interested parties, including workers groups, unions, and employers, will have 45 days to submit public comments on the proposed rule. The deadline for comments is December 13, 2022. After the comment period closes, the DOL has to decide whether to move forward with a final rule. If it does, it is believed that the final rule would issue sometime in the second half of 2023, or perhaps in early 2024.
The attorneys at Freking Myers and Reul work hard to stay up to date on changes in the laws that affect workers, including the FLSA, and will monitor the DOL proposed rule changes and any legal challenges that may follow.
For more information on the FLSA proposed rule change see:
Wages and the Fair Labor Standards Act
US Department of Labor announces proposed rule on classifying employees, independent contractors; seeks to return to longstanding interpretation