Department of Labor revises independent contractor status

By Jenny LescohierJanuary 09, 2021

The U.S. Department of Labor clarifies its interpretation of independent contractor status

The U.S. Department of Labor’s Independent Contractor Final Rule, issued Jan. 6, clarifies its interpretation of independent contractor status under the Fair Labor Standards Act, a move supported by Associated Builders and Contractors (ABC).

In response to the ruling, Ben Brubeck, ABC vice president of regulatory, labor and state affairs, released a statement calling it a win for small businesses, free enterprise and economic growth as the U.S. looks to rebuild and recover.

“We are pleased the final rule clarifies the DOL’s interpretation of independent contractor status under the Fair Labor Standards Act and promotes certainty for employers, independent contractors and employees,” he stated. “Independent contractors are an essential lifeline to the construction industry - they provide specialized skills, entrepreneurial opportunities and stability during fluctuations of work common to construction.

“Bottom line: DOL’s final rule will promote economic growth in multiple industries, including construction, by providing greater clarity to industry employers as to the proper classification of independent contractors and employees under the FLSA.”

In September 2020, the U.S. Department of Labor announced a proposed rule that would revise its interpretation of independent contractor status. According to the DOL press release, the proposal would:

Adopt an “economic reality” test to determine a worker’s status as an employee or an independent contractor under FLSA. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);

Identify and explain two “core factors,” specifically: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves;

Identify three other factors that may serve as additional guideposts in the analysis, including: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and

Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

In October, ABC submitted comments in support of the DOL’s proposed rule revising its interpretation of independent contractor status under the FLSA.

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