DOL Proposes New Rule to Change How Workers are Classified
By Christina M. Reger, Esq. and Jacqueline Hopkins
The U.S. Department of Labor recently announced a new proposed rule that will change the way workers are classified. The Employee or Independent Contractor Classification Under the Fair Labor Standards Act establishes a six-factor economic realities test for determining whether a worker is an employee or independent contractor. The six factors are:
- how essential the work is to the company;
- how long the worker has worked for the same company;
- the amount the worker has invested in facilities and materials that help them do their job;
- the degree of control the company has over terms such as hours, pay and quality control;
- the worker’s opportunities for profit and loss; and
- the level of skill required to successfully compete in the open market.
The purpose of the new rule is to protect workers from being wrongfully denied the benefits and protections of an employee. For people who enjoy the flexibility of being an independent contractor, the added factors could make it more difficult to prove their status, particularly if they live in a state where the standards for classifying employees is more relaxed.
Currently in Pennsylvania, a worker is an independent contractor if:
- They are free from control or direction over the performance of the services involved, both under the contract of service and in fact, and
- As to such services, the individual is customarily engaged in an independently established trade, occupation, profession or business.
This means that, as long as the worker sets his or her own work hours, offers his or her services to the public at large, and is employed under an independent contract agreement, they would generally not be considered an employee. Whether or not the new proposed rule will have any significant impact for Pennsylvania workers remains to be seen. States are not required to adopt a proposed rule and many will continue to use their own criteria for classifying employees. However, employers need to be mindful that they must continue to abide by both the federal and state requirements as both agencies have authority over them.
We will keep an eye on this issue as it develops. As always, if you have concerns about worker classification at your business, we are available to assist you.