DOL Withdraws Independent Contractor Rule

On May 5, 2021, the U.S. Department of Labor (DOL) withdrew the “Independent Contractor Rule” to help preserve essential workers’ rights- including the minimum wage and overtime compensation protections of the Fair Labor Standards Act (FLSA). The withdrawal is effective May 6.

FLSA requires that covered employers pay employees at least the federal minimum wage for every hour they work and overtime compensation 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.

The Independent Contractor Rule enacted by the Trump administration guided businesses’ ability to legally consider workers as independent contractors. The Biden administration withdrew the regulation without replacing it with a new interpretation of when workers can function as independent contractors. In deciding questions of workers’ status, the DOL will now rely on a longstanding multi-factor test established by judicial precedent. The DOL guidance from 2008 outlines a seven-factor “economic realities” test rooted in case law. Those seven factors will be applied where worker classification is considered by the department, including an examination of whether the work performed is “an integral part” of the business and the worker’s “degree of independent business organization and operation.”

We encourage employers to assess the relationship they have with workers and correct any misclassifications. Call Employers Council with questions; we can help.