FLSA Independent Contractor Rule Clears Final Hurdle
Author: Michael Cardman, HR & Compliance Center Senior Legal Editor
January 4, 2023
A new rule that would make it harder for employers to classify workers as independent contractors under the Fair Labor Standards Act (FLSA) may be coming any day now.
The White House's Office of Management and Budget (OMB) on January 2 approved a rule proposed by the US Department of Labor (DOL) in 2022 that would replace the Trump administration's five-factor test for independent contractor classification with a version of the "economic realities test."
This marks the final step in the nine-step federal regulatory process before the DOL issues a final rule.
The final rule would take effect no sooner than 60 days after it is published in the Federal Register.
Under Executive Order 12866, the OMB is required to perform a cost-benefit-cost analysis for any new regulation that is economically significant.
The OMB estimated that the total cost for businesses, governments and independent contractors to familiarize themselves with the new rule would be $408 million.
Under the DOL's proposed regulation, the following six factors would be used to "guide an assessment of the economic realities of the working relationship and the question of economic dependence":
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the employer's business; and
- Skill and initiative.
In addition, the DOL said it would consider any other factors that in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the employer for work.