On September 22, 2020, the DOL issued a proposed regulation intended to help employers analyze whether a worker is an independent contractor or an employee under the Fair Labor Standards Act (the “FLSA”). As background, courts and the DOL have generally applied several factors to consider when performing that analysis. Those factors, which are non-exclusive, are: (1) the employer’s and the individual’s degree of control over the work; (2) the individual’s opportunity for profit or loss; (3) the individual’s investment in facilities and equipment, if any; (4) the permanency of the parties’ relationship; (5) the skill or expertise required by the individual to perform the work; and (6) whether the work is “part of an integrated unit of production.”
The proposed regulation aims to elevate the first and second factors above, by stating that those factors are the “most probative” and should be “afforded greater weight” than the other factors. Also, with respect to the first factor, the proposed regulation focuses on the individual’s degree of control over the work. Under current law, each factor is weighed equally.
Note that this proposed regulation would apply only to the FLSA. Consequently, it would not affect the Internal Revenue Code, or state laws that have not adopted the FLSA for purposes of determining whether a worker is an employee or an independent contractor. Also, even if this regulation is soon finalized, its legal effect might be significantly affected if the presidential election results in an administration change. I will keep you updated as this develops.