The U.S. Department of Labor is set to issue a Proposed Rule that will have a significant impact on the test used to determine whether someone is an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”).

The DOL’s intent in issuing this Proposed Rule is made clear by Secretary of Labor Marty Walsh’s comments: “While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers.  Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

An unpublished version of the Proposed Rule indicates it will make it easier for the DOL to find that workers have been misclassified as independent contractors rather than employees. The current test, in effect since March, 2021, analyzes five factors and places the greatest weight on two “core factors:” the nature and degree of control over the work and the worker’s opportunity for profit or loss based on personal initiative or investment.  The DOL now seeks to rescind the 2021 test and replace it with the new Proposed Rule.

The new Proposed Rule will focus on the “economic reality” of the worker’s situation, ultimately asking – Are the workers economically dependent upon an employer for work (and therefore an employee) or are they in business for themselves (and therefore an independent contractor)?

The economic reality test in the Proposed Rule will return to a “totality of the circumstances” analysis, under which no specific factors have greater weight, and all are considered in view of the economic reality of the whole relationship. The DOL is further proposing to return the consideration of investment as a stand-alone factor, and to provide additional analysis of the control factor, including detailed discussions of how scheduling, supervision, price-setting, and the ability to work for others should be considered. Furthermore, the Proposed Rule will not limit control only to control that is actually exerted.

The Proposed Rule will also re-focus the analysis on the “integral” factor, which considers whether the work is integral to the potential employer’s business. The permanency of the relationship is another factor under the Proposed Rule that often weighs against independent contractor status for many workers who provide services for the same entity over an extended period of time.

The Proposed Rule is scheduled to be published in the Federal Registry on October 13,, which will begin a 45-day comment period.