Department of Labor Proposes Rule To Clarify Independent Contractor Conundrum An employee who is mischaracterized as an independent contractor may expose the employer to sizable claims under federal and state laws. By Jim EvansNov 16, 2020 Is she an independent contractor or an employee? The distinction is critical because independent contractors are not entitled to be paid minimum wage, do not receive overtime and typically receive none of the benefits that employees are entitled to. The distinction is equally critical to companies. An employee who is mischaracterized as an independent contractor may expose the employer to sizable claims under federal and state laws—the distinction matters! State legislatures, courts and government agencies continue to struggle with how to determine whether someone is an independent contractor or employee. In turn, employers are left with the uncertainties created by a minefield of state and federal laws and regulations that often conflict with one another. The Department of Labor (DOL) recently proposed a rule intended to create greater certainty on the matter under the federal Fair Labor Standards Act (FLSA). Depending on if the new presidential administration changes things, the proposed rule would establish an “economic reality” test to determine a worker’s status as an employee or independent contractor. The proposed rule is undoubtedly intended to make it easier for companies to treat workers as independent contractors under the FLSA. The new rule won’t affect state laws or regulations, so beware! The Economic Reality Test of the New Rule Under the proposed “economic reality” test, the DOL would consider whether or not an individual is in business for herself, in which case she would likely be properly classified as an independent contractor. In contrast, if she is “economically dependent” on the company for work, she would most likely be treated as an employee. To make this determination, the DOL proposes to consider two primary issues: 1. The extent of the worker’s control over the work 2. The worker’s opportunity for profit or loss based on initiative or investment Let's block ads! (Why?)