It Takes Two: The DOL’s Proposed Rulemaking Regarding FLSA Worker Classification
The independent contractor/employee classification conundrum is nothing new. Courts, state legislatures, and even the IRS have developed a slew of multi-factor tests to assess whether a worker is an employee or independent contractor. Mixed among these tests is arguably the most significant-the U.S. Department of Labor’s six-factor test, which is now being given a much-needed makeover. On September 22, 2020, the DOL released a Notice of Proposed Rulemaking, announcing an employer-friendly proposed rule that nixes a balancing test in favor of a test that focuses on the two factors that matter.
As the rule currently stands, the DOL has a six-factor test to assess the worker’s economic dependence on the business, including: (1) the business’s control over the workers; (2) the permanency of the relationship; (3)the workers’ investment in facilities and equipment; (4) the skill required to complete the work; (5) the opportunities for profit or loss; and (6) the extent to which the workers’ services are integrated into the business. No one factor is given more weight than any other.
While the proposed rule similarly addresses the “economic reality” of the employment relationship, there is now a five-factor test, which focuses on two core factors:
- the nature and degree of the worker’s control over the work; and
- the worker’s opportunity for profit or loss based on initiative or investment.
- the amount of skill required for the work;
- the degree of permanence of the working relationship; and
- whether the work is part of an integrated unit of production.
In its efforts to finalize the rule before the end of 2020, the DOL will only be allowing a 30-day public comment period, much shorter than the usual 60-day period. It appears that a combination of lobbying from the business community and the potential results of 2020 presidential and Senate elections have led to the DOL’s fast-tracking to issue a final regulation before any potential change in presidential administrations.