Department of Labor Releases Final Independent Contractor Rule

Filed in Labor by on January 6, 2021 4 Comments

rulesThe U.S. Department of Labor (DOL) announced a final rule clarifying the definition of employee under the Fair Labor Standards Act (FLSA) as it relates to independent contractors. While the rule will make it easier for businesses to classify workers as independent contractors, it is still unclear if it will ultimately be implemented by the incoming Biden administration.

The final rule would provide more clarity to employers in determining whether a worker is an independent contractor or an employee under the FLSA. 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, and has urged further action to harmonize the definition of “employee” across all relevant statutes.

NAHB is pleased that at our request the new rule includes specific examples of how it would relate to the construction industry.

Though the rule is intended to take effect 60 days after it is published in the Federal Register, the DOL under the new Biden administration could delay the effective date and support legal challenges to keep the rule from being implemented.

The DOL’s final independent contractor rule as issued today still relies on an economic realities test to determine employment status, but adopts a more streamlined five-factor approach.

Two “core factors” are given greater weight in making this determination — the nature and degree of the employer’s control over the work, and the worker’s opportunity for profit or loss based on personal 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.

The three other factors that may serve as additional guideposts in the analysis are 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.

The final rule will be published in the Federal Register on Jan. 7 and be effective on March 8, 2021.

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

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Comments (4)

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  1. Joe Franson says:

    This needs to pass. We compete against company’s that piece meal there jobs. If you work Solly for one company are you not considered a an employee.

  2. How does this conflict or integrate with IRS rules on the same subject?

    • NAHB Now says:

      A worker may be an independent contractor under a test used by one agency, and an employee under the test used by another agency, creating confusion for businesses. The recent rule released by the Department of Labor (DOL), unfortunately, does not change that. The IRS uses a common law test, while the DOL uses the economic realities test. While the rule makes DOL’s test more narrow and straightforward, it still doesn’t harmonize with the IRS definition. NAHB has long advocated for harmonization of these federal tests as they can produce different conflicting results when determining whether a worker should be classified as an employee or an independent contractor.

  3. We need more stringent criteria for sub contracting. The most common phrase used in contracting labor is,”dude, I’ll just 10 99 ya” licensing and permitting would help solve these issues.

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