The U.S. Department of Labor (DOL) issued a notice of proposed rulemaking revising its interpretation of independent contractor status under the Fair Labor Standards Act (FLSA) with a streamlined economic reality testin an effort to promote certainty for stakeholders, reduce litigation, and encourage innovation in the economy.
In determining a worker’s status as an employee or independent contractor, the proposed rule examines a workers’ economic independence based on:
- The nature and degree of workers’ control over the work(i.e. setting your own schedule; selecting your own projects; ability to work for others.) and,
- The workers’ opportunity for profit and losses based on workers’ investment(i.e. individual management of investment or capital expenditure on material to further work).
Should additional analysis be needed, DOL proposed three additional guideposts for deciding a worker’s status based on: (1) the amount of skill required for work; (2) the degree of permeance of the working relationship between the worker and the potential employer; and, (3) whether the work is part of an integrated unit of production. In evaluating the individual’s economic dependence on the potential employer, the actual practice of the parties involved is more relevant than what may be contractually or theoretically possible. For example, a business’ contractual authority to supervise or discipline an individual may be of little relevance if in practice, the business never exercises such authority.
Worker classification is governed by state and federal law. Authoritative federal guidance on this matter may help mitigate the increasing threats on the ability to be classified as an independent contractor posed by new state laws and courts around the country. Improper classification of a worker could result in penalties or legal action at the federal or state level, in addition to litigation by workers seeking unpaid minimum wage or overtime benefits under the FLSA.
Comments on the proposed rule are due on October 26, 2020. Given the timing of this proposed rule and how long it may take to finalize, the rule could be subject to repeal under the Congressional Review Act. NAR will be submitting comments and encourages state and local associations and members to also consider providing feedback. Stay tuned to nar.realtor for more information