Employers will have harder time claiming workers are independent contractors (not employees)
On May 5, 2021, the U.S. Department of Labor (DOL) announced the withdrawal of the Independent Contractor Rule under the Fair Labor Standards Act (FLSA). The withdrawal goes into effect May 6, 2021.
In an announcement, the DOL stated several reasons for the change:
- The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
- The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.
- The rule would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.
This withdrawl should come as no surprise. On March 12, the DOL issued a proposal to withdraw the rule. The writing was on the wall.
The final rule had previously been slated to go into effect in March but was postponed to May 7, 2021, as the Biden administration wanted additional time to review and consider the final rule. Now that they have done this, and considered public comments, the final rule is no more.
FLSA: Employee vs. independent contractor
A worker’s classification as an employee or an independent contractor makes a significant difference when it comes to their rights under the FSLA.
The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime pay at not less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek. FLSA protections do not apply to independent contractors.
Posting change?
The Employee Rights Under the Fair Labor Standards Act poster, which must be posted by all employers, contains information about independent contractors. The withdrawal of the rule will not impact the poster, however.
The poster notes that workers are sometimes incorrectly classified as independent contractors when they are really employees, and it is important to know the difference between the two classifications. Employees are entitled to minimum wage and overtime pay protections, while independent contractors are not.
This information remains accurate, so the FLSA poster will not be updated because of the rule withdrawal.