DOL Issues Rulemaking Notice to Change the Worker-Contractor Classification Rule

Posted on October 13, 2022 by Mark Schulz

Today, the Department of Labor (DOL) will issue a notice of proposed rulemaking to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The department believes the new rule will preserve essential worker rights and provide consistency for regulated entities.

Proposed New Rule

The department's Wage and Hourly division ensures that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections. DOL states, "Misclassification is a serious issue that denies workers' rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at large."

Specifically, the proposed rule would:

• Align the department's approach with the courts' FLSA interpretation and the economic reality test.
• Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA. 
• Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
• Revert to the longstanding interpretation of the economic reality factors. These factors include investment, control, and opportunity for profit or loss. The integral factor, which considers whether the work is critical to the employer's business, is also included.
• Assist with the proper classification of employees and independent contractors under the FLSA.
• Rescind a 2021 Independent Contractor Rule.

You can read the proposed new rule for more details.

Potential Impact

The proposed rule's impact appears minimal as it encapsulates most of what the courts have already been doing and the Internal Revenue Service's 20-Factor Test that long-term care employers have used for a long time. Therefore, many care centers may already be using hiring and payment practices that would prepare them well for adopting a new DOL standard. 

Summary

Regardless of the proposed rule's anticipated minimal impact, we are tracking it along with tracking the efforts of LeadingAge and other national stakeholders. When the final rule becomes known, we will provide additional information and education for our members as soon as possible to help you understand the final version, its implementation timeline, and what you can expect. Watch Advantage for further updates.