The U.S. Department of Labor (the Department) is modifying Wage and Hour Division regulations to replace its analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA or Act) with an analysis that is more consistent with judicial precedent and the Act’s text and purpose.
This rule, superseding previous rulings, addresses how to determine if a worker is properly classified as an employee or as an independent contractor under the Fair Labor Standards Act (FLSA). the FLSA generally requires covered employers to pay nonexempt employees at least the Federal minimum wage for all hours worked and at least one and one-half times the employee’s regular rate of pay for every hour worked over 40 in a workweek. The Act also requires covered employers to maintain certain records regarding employees and prohibits retaliation against employees who are discharged or discriminated against after, for example, filing a complaint regarding their pay. However, the FLSA’s protections do not apply to independent contractors.
The term, “Independent Contractor (IC)” refers to workers who are not economically dependent on an employer for work and are in business “for themselves”.
The new IC rule refers to the longstanding framing of investment as its own separate factor, and the integral factor as one that looks to whether the work performed is an integral part of a potential employer’s business rather than part of an integrated unit of production. The rule provides discussion of how scheduling, remote supervision, price setting, and the ability to work for others should be considered the control factor, and it allows for consideration of reserved rights while removing the provision that minimized the relevance of “retained rights”.
The NEW Economic Reality Test
- Does the employer have the right to control the manner in which the work is performed? Yes=employee, No=IC
- Does the worker have the capability of controlling his/her profits or losses? Yes= IC, No= employee
- Does the worker invest in equipment or materials required for their task? Yes= IC, No= employee
- Does the work require a skill set NOT in the business? Yes=IC, NO= employee
- Is the working relationship considered temporary or indefinite or permanent? Permanent = employee, temp or indef = IC
- Does the employer exert control over the worker’s efforts (start/stop times, required presence, scheduling, product pricing)? Yes= employee, NO= IC
We encourage you to read the new regulations – there will be substantial information published in the coming months. But the rulings suggest that a producer who carries an agency’s business card, has a desk or office at the agency, works for no one else, and is considered an employee by staff, clients, and carriers – will probably be considered an employee if an FLSA inquiry is ever launched. It’s not worth the penalties that will accrue (from the moment the incorrect decision is made) if the question ever arises.
We do not yet know the nuances for life insurance producers, who have historically been exempted and permitted to be 1099 ICs within the insurance industry.