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Department of Labor Makes Final Rule on Independent Contractors

Recently, the Department of Labor adopted a final rule pertaining to clarification over who could be classified as an independent contractor. The Fair Labor Standards Act (FLSA) establishes what benefits and flexibility employers have with their employees. For instance, non-exempt employees must receive at least minimum wage and be paid overtime wages if they work more than 40 hours a week. However, this law does not apply to independent contractors.

Since employers do not have to offer any perks to independent contractors, some have argued that they have deliberately misclassified their employees to avoid paying for these benefits. Multiple courts have weighed in on the controversy, but there has not been any clarity on the federal level until now.

What Does the New Rule State?

The Labor Department stated that the new rule will reaffirm the economic reality test that has been standard in the industry to determine whether an individual is in business for themselves, such as an independent contractor, or is economically dependent on a potential employer for work, such as an FLSA employee. The rule highlights two core factors that can be used to make that determination:

  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.

If those two factors fail to provide the necessary clarification, the department offered three additional guideposts that should help employers determine a worker’s proper status. They are:

  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.

The new rule, which is scheduled to take effect on March 8, applies only to workers that fall under the jurisdiction of the FLSA. It would also not impact local and state law requirements.

Will the New Rule Take Effect?

The new President could easily block the new rule from taking effect. Congress could also get involved and stop the rule using its authority under the Congressional Review Act, which gives Congress a limited time to repeal any rule finalized by a government agency. A reconstituted Labor Department could modify the current version to return to an old policy that allowed for an employer-employee relationship to be established even when indirect control existed over the worker.

How Should Employers React to the New Rule?

Regardless of the outcome, businesses should use the adoption of the new rule as an opportunity to evaluate the relationship they have with their employees. They should re-examine the status of those workers and determine if their status makes sense for the work that they are doing and the control they have over their own situation. Employers should guarantee that they have correctly classified their employees and determine that classification based on who has the right to control or direct the results of their work, as opposed to how the employee and employer define their relationship.

Philadelphia Employment Lawyers at Sidkoff, Pincus & Green P.C. Represent Misclassified Workers

If you believe that you have been misclassified by your employer or if you are a business and would like an attorney review your compliance with the FLSA, contact the Philadelphia employment lawyers at Sidkoff, Pincus & Green P.C. We can help you with your case. For an initial consultation, call 215-574-0600 or contact us online today. Located in Philadelphia, we serve clients throughout South Jersey and Pennsylvania.