Fair Labor Standards Act

On January 6, The U.S. Department of Labor announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The final rule gives businesses a clearer path to classify workers as independent contractors. The rule will take effect 60 days after publication on the Federal Register, on March 8, 2021.  

The final rule established a simpler legal standard for when employers may classify workers as independent contractors rather than as employees, who are covered by federal minimum wage and overtime law.

The Labor Department’s action follows a 2019 California law that required businesses to reclassify many contract and gig workers as employees, giving those workers access to the state’s minimum wage and overtime laws, workers’ compensation coverage and paid sick days.

“This rule brings long-needed clarity for American workers and employers,” said U.S. Secretary of Labor Eugene Scalia. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”

The final rule includes the following clarifications:

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee). 
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

With the final rule being released just 2 weeks before President-elect Joe Biden takes office, it puts into question how long this rule will be enforced. Biden’s incoming press secretary cited the independent contractor regulation on Dec. 30 as one of the “midnight” rules that could be frozen from taking effect in a memo on Inauguration Day.

Denise Bode
Bio Link Denise co-leads the federal practice at Michael Best Strategies with expertise in association and coalition management as well as development of public policy strategies, at both the state and federal level. She was active, on behalf of firm clients, during the recent federal tax reform debate, much as she was during the last major tax reform in 1986. Expertise: Regulatory Law, Tax & Trade, Energy, Environmental, Food, Agriculture, and Telecommunications
Harrison Collins
Bio Link Harrison provides administrative support for Strategies’ team members and clients. He previously worked in public affairs for the American Farm Bureau Federation, where he developed research reports on economic and policy issues facing the agriculture industry, and helped manage key events and communications. Expertise: Agribusiness, Communications, Research and Public Affairs
Sarah Helton
Bio Link Prior to joining Michael Best Strategies, Sarah served as regulatory counsel at ASTM International. In this role, she supported the Office of Global Policy and Industry Affairs on legal, legislative, and regulatory matters. She researched, analyzed, and advised on current and emerging federal policy matters that affected diverse industries, including energy, environment, transportation, technology, and trade. Expertise: Manufacturing, Tax and Finance, PAC, Education, Political Giving, and Transportation
Alex Nichols
Bio Link Alex works with businesses and associations to help them successfully navigate federal legislative, regulatory, and political solutions on a wide variety of issues. As a member of Strategies’ International Trade Practice, Alex helps clients in more than a dozen industries navigate international trade agreements and various U.S. trade actions, supply chain solutions, and customs issues. Expertise: Trade, Tax & Finance, Education, and Manufacturing

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