Ver la versión en español aquí

The U.S. Department of Labor (“DOL”) recently posted a proposed rule meant to help employers determine whether individuals performing services are employees or independent contractors for purposes of federal wage and hour laws.  Misclassifying an employee as an independent contractor is risky and exposes an employer to potential expensive lawsuits, including for unpaid minimum wages and overtime, liquidated (or double) damages, civil monetary penalties, costs and fees, and, in some instances, criminal penalties.  In addition, classification errors can lead to employment tax claims and penalties.  Employers want more clarity and the DOL is trying to do just that.

The proposed rule clarifies that the ultimate inquiry rests on whether the individual is economically dependent on an employer.  To determine whether an individual is an independent contractor, an employer should consider (i) the nature and degree of the individual’s control over the work; (ii) the individual’s opportunity for profit or loss; (iii) the amount of skill required for the work; (iv) the degree of the permanence of the working relationship; and (v) whether the work performed is a component of the employer’s integrated production process. The proposed rule provides that that the first two factors, independence and opportunity for profit or loss, are the most important determination factors and the individual likely is an independent contractor if both factors exist. The rule also reiterates that the five listed factors are not an exhaustive list and that no single factor is dispositive.

Despite this new guidance, the employee versus independent contractor determination likely will continue to be a heavily litigated issue. The rule will not override more worker-friendly state legislation, in those states where it exists.  Florida is not one of those states.  In addition, it is not clear how the proposed rule will affect the National Labor Relations Board’s attempts to address this very same issue. Finally, even if the proposed rule is adopted, a court challenge is likely to occur, similar to what happened when the DOL issued its new joint employer rule.  Some members of Congress have already indicated that they will try to introduce legislation to tighten the federal test for classifying workers as independent contractors.

In other words, this issue is not likely to go away so stay tuned.