The U.S. Department of Labor on Thursday unveiled a highly anticipated proposed rule to determine how employers should classify independent contractors.
The proposal would replace a Biden-era rule that made it more challenging for organizations to classify workers as contractors with one similar to what the Trump administration advanced during the president’s first term in office—largely considered a more business-friendly standard.
According to the DOL, the rule would require organizations to apply an “economic reality” standard in determining whether a worker is an employee or independent contractor. To qualify as an employee who is “economically dependent” on the organization—or in business for themselves—the organization must demonstrate two “core factors”: how much control the person has over their work and their opportunity for profit or loss connected to their investment in the work.
Other factors that employers must consider include skill level, permanence of the position and “whether the work is part of an integrated unit of production.”
A DOL statement on the proposals says the “streamlined” approach would “make it easier to properly differentiate between employees with the protections under the Fair Labor Standards Act and those workers who work as independent contractors.” The measure also aims to extend this standard to employee and contractor classifications related to the Family and Medical Leave Act and Migrant and Seasonal Agricultural Worker Protection Act.
“The rule we are proposing today is not only based on long-standing legal principles used in federal courts across the country, but also is aimed at ensuring that workers and employers know how to apply those principles predictably,” said Wage and Hour Division Administrator Andrew Rogers in a statement Thursday. Rogers said the proposed standard aligns with the intent of the FLSA and would ultimately “improve compliance, reduce misclassification and reduce costly litigation in an economic environment that needs flexibility and innovation.”
In a statement issued Thursday, the American Trucking Association—which represents 350,000 independent truckers—called the proposal a “significant step forward to defend the livelihoods of the hundreds of thousands of truckers who choose to work as independent contractors.”
ATA said the Biden approach to classification involved an “opaque and deliberately confusing standard designed to fuel frivolous litigation and deny self-employed individuals the freedom of choice to work as independent contractors.”
Public comment on the rule is now open for 60 days, closing April 28.
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