On October 13th, 2022, the U.S. Department of Labor (DOL) will publish a Notice of Proposed Rulemaking. This will assist employers and workers to determine whether a worker is classified as an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The FLSA established minimum wage, overtime pay, recordkeeping, and youth employment standards that affect employees in the private sector and Federal, State, and local governments.

An independent contractor is a self-employed individual or entity contracted to perform work for or provides services to, another entity as a non-employee. Independent contractors are not entitled to such benefits because they typically have more flexibility to create their own schedules and work for several different companies at once.

The proposed rule will provide guidance on classifying workers, and seeks to combat employee misclassification. According to the National Conference of State Legislatures (NCSL), employee misclassification is the practice of labeling workers as independent contractors, rather than employees. It allows employers to avoid paying unemployment and additional taxes on workers, and from covering them on workers’ compensation and unemployment insurance. Misclassifying a worker can cause the following issues:

• Denies workers’ rights and protections under federal labor standards
• Promotes wage theft
• Allows certain employers to gain an unfair advantage over law-abiding businesses
• Hurts the economy as a whole

Understanding The Proposed Rule

The new rule will ultimately preserve essential worker rights and provide consistency for regulated entities. In addition, employers are directed to consider exclusivity under the permanent factor, but it acknowledges that simply having multiple jobs does not necessarily make you an independent contractor. The following are factors that could be considered:

• The amount of skill required for the job
• The degree of performance associated with the working relationship
• The worker’s investment in equipment or material required for daily tasks
• Service rendered is integral to the employer’s operations

The Impact A PEO Has On Your Business

Are you wondering whether your employees are considered independent contractors or not? When you outsource HR functions to a PEO like GMS, you gain resources that help you figure out these decisions. HR outsourcing companies can manage a whole range of responsibilities for your business including payroll, benefits, risk management, and HR. At GMS, we have HR experts to ensure you are staying compliant with the Department of Labor. Contact us today to learn more.