In a recent blog post, the U.S. Department of Labor (DOL) announced it will issue a proposed rule on determining employee or independent contractor status under the Fair Labor and Standards Act (FLSA).
On Jan. 7, 2021, during the Trump administration, the DOL published a rule—the Independent Contractor Status Under the FLSA —that expanded the definition of workers who could be classified as independent contractors. On March 4, 2021, under the Biden administration, the DOL delayed the rule before withdrawing it on May 6, 2021, for being inconsistent with the FLSA text and purpose.
The DOL’s proposed rule could provide clarity for employers in establishing and maintaining proper classification of workers under the FLSA, impacting compliance costs and litigation risk.
On March 14, 2022, a U.S. district court vacated the DOL’s delay and withdrawal of the rule for failing to meet rulemaking requirements for federal agencies. As a result, the district court determined the rule took effect as of March 8, 2021—the original effective date—and remains in effect.
Employer Takeaway: The DOL’s proposed rule provides clarity for employers in establishing and maintaining proper classification of workers under the FLSA, impacting compliance costs and litigation risk.
The existing rule is generally viewed as employer-friendly, making it easier for employers to classify workers as independent contractors under the FLSA. The DOL’s proposed rule may change how employers classify their workers.
If the DOL adopts a more employee-friendly rule, workers previously classified as independent contractors may be entitled to employee protections and essential benefits such as the right to minimum wage, overtime pay, unemployment insurance and workers’ compensation. Providing these protections to more workers may be expensive for employers.
What’s Next? The DOL plans to engage in rulemaking on determining employee and independent contractor status under the FLSA. The DOL will hold public forums in June to hear from those who may be impacted by the new rule. An employer forum will take place on June 24, 2022, and a worker forum on June 29, 2022. Once the DOL publishes a proposed rule in the Federal Register, there will be a notice and comment period.
Even after the DOL completes the notice and comment period, it will likely be some time before this proposed rule becomes final, if ever. Employers are not obligated to change how they classify employees until the DOL’s proposed rule becomes final. However, potentially impacted employers will want to follow the DOL’s rulemaking process closely.
We will keep you apprised of any notable updates.
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This update is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Copyright © 2022 Blue Chip Benefits. All right reserved.
This content is of general interest and is not intended to apply to specific circumstances. It should not be regarded as legal advice and not be relied upon as such. In relation to any particular problem which they may have, readers are advised to seek specific advice. Copyright © 2022 Zywave, Inc. All rights reserved.