In January 2021, the Department of Labor issued a rule clarifying the standard for employees versus independent contractors under the Fair Labor Standards Act. Now, as of May 2021, the Department of Labor withdrew the “Independent Contractor Status Under the Fair Labor Standards Act” final rule. According to the Society for Human Resource Management, “The DOL has traditionally analyzed a number of factors to consider whether a worker is an independent contractor or employee and looked at ‘the totality of the circumstances.’ The withdrawn rule would have applied a more-limited economic-reality test.”
The Wall Street Journal described that the rule would have made it “more difficult for a gig worker, such as an Uber or DoorDash driver, to be counted as an employee under federal law.” The WSJ also said the DOL will likely “continue to use its previous regulation to enforce the Fair Labor Standards Act, which was enacted in 1938” and that the rule removal doesn’t change gig worker classification. It quoted a DOL spokesperson as saying that they do not foresee any new independent contractor rules on the horizon.
The DOL said that it “believes that the Rule is inconsistent with the FLSA’s text and purpose, and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”
Employers and employees alike should keep an eye on DOL actions and any future court cases and take guidance from professionals.
It is also beneficial to be aware of state laws. California has an especially strict independent contractor test: Workers are not independent contractors unless the hiring entity satisfies all three of the following conditions:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
Other states, like Illinois, Massachusetts and New Jersey have similarly strict tests, according to the SHRM, which said the Biden administration favors an eventual federal rule similar to California’s.
How Can Capital Payroll Partners Help?
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