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New DOL Rule Would Update Test for Independent Contractors vs. Employees

Independent Contractor Agreement on Clipboard

The federal agency is seeking to reduce the risk of misclassification

On October 13, the United States Department of Labor (DOL) published a proposed rule that would affect how employees are classified under the Fair Labor Standards Act.

The new rule would restore the multifactor economic reality test that DOL previously used to assess misclassification. The rule was changed to be more business-friendly by the outgoing administration on January 7, 2021.

Our legal team remains on the forefront in the fight for employees’ rights and the struggle to ensure Ohio employees are paid appropriately for all hours worked. If you have concerns about possible misclassification as an independent contractor, give us a call or contact us online today.

Breaking down the multifactor economic reality test

The proposed DOL rule would consider the “totality of the circumstances” when assessing whether a worker is a contractor or an employee. In other words, there is no single litmus test; the government weighs several factors in determining whether a violation of the FLSA has occurred.

  • Opportunity for profit or loss depending on skill. Independent contractors generally have the ability to make more or less money depending on the quality of their work, whereas employees are paid a set wage.
  • Level of investment by the worker and the employer. This factor looks at whether the worker has a degree of capital or entrepreneurial investment in the work. Purchasing tools and equipment, in and of itself, isn’t sufficient.
  • Permanence of the relationship. Contractors’ relationships with employers are usually either definite (that is, brought in for a set period or a specific project) or sporadic (for instance, handling overflow work as needed). An ongoing, indefinite relationship is an indicator that the worker is an employee.
  • Degree of control over the work. Contractors usually have substantial control over key aspects of their work, such as scheduling and location.
  • Integral part of the business. Work that is central or necessary to the employer’s business is typically performed by employees, not contractors.
  • Specialized skills and business-like initiative. This factor examines whether the contractor is hired for a particular set of skills and whether those skills are consistent with the contractor being in their own business instead of dependent on the employer.

It’s important to remember that these rules apply specifically to classification as an independent contractor under the FLSA, which affects, for example, whether you are eligible for minimum wage and overtime. Other factors may be used to determine your classification in other contexts, such as whether you are protected by anti-discrimination laws.

If you are misclassified as a contractor, talk to an employment law attorney

Misclassification can have a tremendous impact on affected workers. For example, being misclassified as a contractor could lead to you being severely underpaid for your work, not to mention the implications for your taxes and important legal protections. Moreover, if you are misclassified, there’s a good chance that others who work for the same employer are being misclassified as well.

That’s why you need to talk to an experienced attorney at Nilges Draher LLC about your legal rights and options. We have a winning track record in wage and hour cases involving misclassification, and we can help you find a path forward. Contact us today for a free case evaluation.

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