November 2, 2022
On October 13, 2022, the United States Department of Labor (“DOL”) published a proposed rule that would address the distinction between employees and independent contractors under the Fair Labor Standards Act. DOL has given interested parties until December 13, 2022, to comment on the proposed rule.
In January 2021, DOL issued a regulation on independent contractor status that was more favorable to finding that a worker was an independent contractor than previous DOL guidance. The January 2021 regulation focused on two “core factors” of control and opportunity for profit or loss by the worker; it disregarded or minimized the significance of a multitude of other factors that had been part of previous DOL guidance. The Biden administration attempted to delay and repeal the January 2021 regulation, but a federal district court has reinstated the January 2021 regulation.
The proposed rule would explicitly rescind the January 2021 regulation and apply a non-exclusive six factor test to determine whether a worker is an independent contractor or an employee: (1) opportunity for profit of 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; (5) extent to which the work performed is an integral part of the employer’s business; and (6) skill and initiative. The regulation concludes with the statement “Additional factors may be relevant... if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the employer for work.”
Whether a worker is an independent contractor or an employee under the Fair Labor Standards Act is relevant to whether an employer must pay minimum wage and overtime pay for hourly employees. The distinction between an independent contractor and an employee is relevant with respect to a number of other issues under federal and state law, such as who pays FICA taxes, whether a worker is covered by state workers’ compensation and unemployment laws, and tort liability for the acts of the worker. Maryland law is more restrictive than federal law on the issue and there are instances where Maryland law will find that a worker is an employee where federal law would classify the worker as an independent contractor.
Although the proper classification of whether worker is an independent contractor or an employee is not always clear, the risks when a business gets it wrong are far more certain.Whenever your business uses independent contractor relationships, a quick call with counsel is necessary to ensure that you are appropriately classifying and documenting the relationship. RKW’s attorneys are well versed in this area to have these discussions with you.