Update May 5, 2021: Upon taking office, President Biden had delayed the effective date of this rule, and the DOL has now formally withdrawn the independent contractor final rule discussed below.
The Department of Labor (DOL) has announced a final rule to take effect March 8, 2021, that would help clarify when an independent contractor is not an employee under the existing rules of the Fair Labor Standards Act (FLSA). States can still establish their own detailed definitions, such as recently done in California’s Prop 22 to exempt Uber and Lyft drivers from being classified as employees.
The new rule focuses most heavily on an “economic reality” test to identify how strongly the worker depends on the business for income or truly operates independently of that business. There will be two “core factors” and several additional “guideposts” for consideration, such as what it means to be part of an integrated production process or looking at how things actually happen rather than what the contract says should happen. The regulation provides six fact-specific examples to help employers apply the rules in real world applications.
With the president-elect’s nomination of Boston Mayor Marty Walsh as Labor Secretary, it is unclear how long these clarifications of existing regulations will remain the new standard. Walsh has a history of union leadership, and Biden has expressed “my belief that the middle class built this country and that unions built the middle class.” The pro-worker positions these two share may push them to consider new regulatory proposals that extend federal protections and benefits to some of the newer workforce models of the last decade.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.