The U.S. Department of Labor’s Wage and Hour Division (WHD) announced this morning that it has issued a proposed rule that would help clarify the definition of independent contractor. The rule includes an "economic reality" test and questions that employers can ask to help them determine classification of the worker.

From the official WHD release:

In the proposed rule, the Department would:

• Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);
• Identify and explain two “core factors,” specifically: the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves;
• Identify three other factors that may serve as additional guideposts in the analysis including: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
• Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

“The rule we proposed today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers,” said Wage and Hour Division Administrator Cheryl Stanton. “The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”

This Notice of Proposed Rulemaking (NPRM) is available for review and public comment for 30 days once it is published in the Federal Register. The Department encourages interested parties to submit comments on the proposed rule.

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