Compliance for HR, Hiring Strategy, HR Management

Department of Labor pulls independent contractor rule

The U.S. Department of Labor (DOL) has withdrawn the previous administration’s rule that allowed businesses to more easily classify workers as independent contractors instead of employees. 

“The department believes that the rule is inconsistent with the [Fair Labor Standards Act’s] FLSA’s text and purpose and would have a confusing and disruptive effect on workers and businesses alike due to its departure from long standing judicial precedent,” according to the May 5th announcement from the DOL.

The FLSA stipulates that employees must be paid at least minimum wage and are eligible for overtime pay and other benefits. Independent contractors have more flexibility regarding their schedules and which companies they work for, but are generally not entitled to the benefits of an employee. 

Experts don’t expect the rule to be replaced in the near future. “We are going back to the decades-old analysis and we really feel that this is the space where we can best protect workers,” according to the principal deputy administrator for the DOL Wage and Hour Division, Jessica Looman. “When it comes to digital workers … we want to make sure that we continue to look at their needs, how they are interacting with their individual employers and whether or not they have the protections of the FLSA.” 

While the DOL has no plans for a new rule, President Biden has indicated support for the “ABC” test that’s similar to the independent contractor rule in California. Generally, these factors determine whether a worker can be accurately classified as an independent contractor:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work. 
  • The worker performs tasks that are 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 the work performed for the hiring entity. 

For more information, check out our blog on the clarification of the original rule. 

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