Department of Labor Proposes New Independent Contractor Rule

Filed in Labor, Legal by on September 22, 2020 9 Comments

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The U.S. Department of Labor (DOL) has announced a proposed rule clarifying the definition of employee under the Fair Labor Standards Act (FLSA) as it relates to independent contractors.

In a press release, the DOL said its proposed rule:

  • Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee);
  • Identifies and explains 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 himself or herself;
  • Identifies three other factors that may serve as additional guideposts in the analysis: 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
  • Advises 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.

NAHB has called on DOL to take steps to provide greater clarity to employers and workers in light of the often conflicting federal tests that exist to determine who is an employee and who is an independent contractor.

The proposed rule would also provide more clarity to shield more employers from misclassification claims, which occur when an employer incorrectly defines a worker as an independent contractor rather than an employee.

NAHB will review the rule in more detail once it is published in the Federal Register, and interested parties will have 30 days to submit comments.

For more information contact David Jaffe at NAHB at 800-368-5242 x8317 or Alexis Moch at x8407.

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Comments (9)

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  1. C William Wright says:

    If an independent contractor were to establish a contractors fee over and above the standard billing rates would clearly separate a worker from a contractor. Anything even as low as 5% could be added to the regular rate per hour would qualify as an independent contractor.
    Working for more than one general contractor would help.

  2. Peter Berube says:

    The problem is when a legitimate contractor like my self who actually pays taxes and has all insurances required bids against the so called contractor with all sub one man shows help. They pay nothing in comp ins or taxes and should be fined and jailed !. I just hired a carpenter who worked 3 years with no taxes taken out, no holiday pay, vacation. Put them out of business. Enough is enough.

  3. Who is the employer if the subcontractor works for several contractors? I don’t see how an employer/contractor can be the primary and liable if this is the case. The rule should be simple: if a sub doesn’t work exclusively for one contractor, he is not an “employee”.

  4. Every sub contrator is more or less economically dependedt on the contrator(s) he or shee is working with. Subcontrators have more control over their earning potential because they earn higher compensation than employees. Sub contrators work with less supervision than empoyees and pay for their own operating and overhead expenses, as well as their own employemnt taxes, in turn. Therefore sub contractors hae to be more organized as entreprenuers than employees. The system is, incentivizing more proficient practices than hourly labor, which has an overall positive impact on the economic value and pricepoint to consumers. The abilty to hire a subcontractor are also key controls ot direct costs enabling scaling a business in many service industries. There is no incentive for instance fo ra hourly worker to commit to part time position when his hourly ratre in fincally insufficient to his needs. By contrast, A subcontractor who is earning substantially more per hour has mroe incentive to collaborate in such instances. Again the overall affect to the economy is positive. Matching Payroll taxes are a huge burden, esepcially to very small companies who operate in narrow margin industries. In such cases it isnt uncommon that the employer is unable to pay himself as much as he pays his employeees. This barrier increases the burden of scaling a business in hopes of obtaining financial sufficiency. We end up with small companies where employers can neither afford health insurance for themselves and are unable to save for retirment. While they pay workers compensation for their employees in many cases they cannot even afford to provide for their own healthcare nor reabilitation for occupational injuries when incurred working in their own businesses. Hourly workers are guaranteed those things though labor laws and other various public programs. Sub contractors are not guaranteed any of that. The risks involved with contracting and sub contractoring are dissilmilar to the lower risk that employees have and this is the most compeling reason for government to offer the smallest subcontractor the same tax incentives offered to other entreprenuers.

  5. The construction industry needs to stop sitting back and letting the government set the agenda. Waiting for a “comment period” and letting government employees write rules to govern the way independent contractors work in construction is ceding the playing field to folks who hate the idea of independent contractors in construction. It’s about time NAHB and other construction organizations put their own rule together and drive the discussion.

    Independent contractors are a necessary part of labor and cost management for contractors and for their customers. The business practice has evolved over decades. The practice reflects the desires of workers to control their own labor, the flexibility contractors need to scale their business up and down to match their labor needs, and for buyers of construction services to get their projects built with the most skilled professionals at the best price. Stop letting government bureaucrats dictate construction business practices based on their wants and needs over the wants and needs of the industry. They’ll destroy an efficient, time-tested system just like they mess up most everything else they try to “fix.”

  6. Stephen Black says:

    we need to keep watch over this since this will effect a lot of our builders that sub out and can keep them busy most of the year. like a framer and mason

  7. Steve says:

    Why does the government need anything but our word? If they are this desperate for taxation perhaps they should spend less.

  8. Robert Hill says:

    I was a contractor for years where I subbed everything out. There were pros and cons to that but it suited me and suited the subs I had. It meant I could run a small company without having to make payroll during the slower times. I agree with one of the comments where it was said we should drive the train when it comes to what we need. Contractors and subs alike. It should not concern Uncle Sam about who pays the tax as long as the tax is getting paid. Deals I make with sub contractors or customers should not be the business of government. A contract should be fair to both parties and legal. Big brother needs to get out of our business. I think we should start a movement of subs and contractors telling the Dept of Labor to bug off and leave us alone.

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