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News Sept. 23, 2020

DOL proposes revision of independent contractor test

The U.S. Department of Labor has proposed a federal independent contractor rule revising its interpretation of the Fair Labor Standards Act’s classification to “bring clarity and consistency” regarding how employers decide who is an independent contractor and who is an employee, according to www.constructiondive.com.

The proposed regulation includes an “economic reality” test to help determine whether individuals are in business for themselves or economically reliant on an employer. Part of the test includes two factors—whether the person has the opportunity for business profit or loss and to what degree they control the work they perform. Other factors to be used as “guideposts” include the level of skill required to perform the job; the performance of the worker-employer relationship; and whether the work is “part of an integrated unit of production.”

The rule gives some flexibility to employers, allowing them to consider a work relationship’s “actual practice” rather than what is contractually or theoretically possible. The DOL’s Wage and Hour Division Administrator Cheryl Stanton said in the press statement the new federal guidelines should help reduce worker misclassification.

The classification of workers as independent contractors or employees is a well-known issue in the construction industry; some unscrupulous employers use the independent contractor status for those who should be classified as employees to avoid providing overtime pay, workers’ compensation coverage and other benefits.

Whether a federal independent contractor rule will affect construction contractors largely depends on the state in which they operate, said Joshua Holt, attorney with Smith, Currie and Hancock LLP. States can enact stricter measures for what constitutes an independent contractor. Holt said in states without independent contractor laws, federal regulation “would fill the vacuum.”

Holt recommended all contractors “know your state [law] and err on the side of following the stricter of the two.”

DOL’s proposal is being processed for publication in the Federal Register; once published, it will be subject to a 30-day public comment period.

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