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The Department thus proposed to promulgate a regulation that would clarify and sharpen the contours of the economic reality test used to determine independent contractor classification under the FLSA. The NPRM explained that such a regulation would provide much needed clarity and encourage flexible work arrangements that benefit both businesses and workers. Consistent with WHD Opinion Letter FLSA2019-6, the Department’s proposal did not include the “independent business organization” factor mentioned in Fact Sheet #13. The opinion letter explained that the “independent business organization” factor was “ncompassed within” the other factors. Because the ultimate inquiry of the economic dependence test is whether workers are “in business for themselves,” Saleem, 854 F.3d at 139, analyzing the worker’s degree of “independent business organization” restates the inquiry and adds little, if anything, to the analysis that is not already covered by the other factors.

And in Donovan v. DialAmerica Marketing, Inc., the court held that homeworkers who were paid on a piece-rate basis to perform the simple service of researching telephone numbers were employees who lacked meaningful opportunity for profit or loss. In contrast, distributors who recruited and managed researchers and were paid based on the productivity of those they managed were independent contractors, in part, because distributors’ earnings depended on “business-like initiative.” Id. at 1387. By contrast, and as we explained in the NPRM, codification of the traditional six-factor balancing test would yield smaller recurring benefits and cost savings over the long term, as the Department continues to believe in the added clarity of an appropriately weighted test with less overlapping redundancy. The changes included in this rule are expected to result in decreased litigation due to increased clarity and reduced misclassification. The methodology of this section mirrors previous final rules promulgated in recent years. The rule would clarify to stakeholders how to distinguish between employees and independent contractors under the Act. The increased clarity is expected to result in fewer independent contractor misclassification legal disputes, and lower litigation costs.

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The Department estimates litigation cost savings as being equal to an estimate of the number of cases avoided as a result of the rule multiplied by the average litigation cost per case. These numbers are small because they represent the marginal time savings for each contract, not the entire time necessary to identify whether an independent contractor relationship holds. Above fields could lack features that would facilitate a position conversion to independent contractor status.

The CWS data, based on its relatively narrow definition of independent contractors, indicated that employees worked more hours per week in comparison to primary independent contractors. The Department found that 81 percent of employees worked full-time, compared to 72 percent for self-employed independent contractors and 69 percent for other independent contractors. Katz and Krueger similarly found that independent contractors work fewer hours per week than employees .

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While all circumstances must be considered, it does not follow that all circumstances or categories of circumstance, i.e., factors, must also be “given equal weight.” See e.g., FTC Commissioner Slaughter; Contractors 2020 Appleseed Center. Assigning one factor less weight than another does not restrict the circumstances being considered because the very act of determining relative weight requires considering both factors.

• Nor is rulemaking likely to negatively impact workers’ income security, on average (see Section VI).
• Many of these impacts will depend on the individual risk tolerances of the workers.
• However, Alan Manning, the author of the foundational source referenced to make this case , explicitly caveats that the wage-setting assumption should not be applied to the self-employed .
• Easily retaining the top spot it has held since the CE100 list was first published almost 20 years ago, the Fench giant reported revenues of more than €48.7 billion in 2019.
• The Act defines a “person” as “an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons.” 29 U.S.C. 203.
• In general, studies using tax data tend to show an increase in prevalence of independent contracting over time.

Using these numbers, the Department estimates that employers will save $369.0 million annually and independent contractors will save $78.1 million annually due to increased clarity . The Department assumes the parameters used in this cost savings estimate will remain constant over time. This assumes no growth in independent contracting, no real wage growth, and no subsequent innovation in the employer-worker relationship. The annualized savings over both a 10-year horizon and in perpetuity, with both the 3 percent and 7 percent discount rates is $447.1 million. As noted above, an additional consideration https://wave-accounting.net/ in the discussion of transfers is that minimum wage and overtime pay requirements would no longer apply if workers shift from employee status to independent contractor status. The 2017 CWS data indicate that, before conditioning on covariates, primary independent contractors are more likely than employees to report earning less than the FLSA minimum wage of $7.25 per hour (8 percent for self-employed independent contractors, 5 percent for other independent contractors, and 2 percent for employees). The Department notes several other key weaknesses in EPI’s estimate that undermine its assertions.

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If, for example, a state mandates that employees receive paid parental leave, but the worker does not have and intends not to have children, this “benefit” is of no value to that worker. Estimating how an individual worker values a particular “benefit” or even a tax liability would require a worker-by-worker analysis for which the Department lacks necessary data. The entirety of the estimated costs from this deregulatory action, which exceed the $100 million threshold and relate strictly to familiarization, fall in the first year alone. The Department’s Regulatory Impact Analysis further explains that these one-year costs are more than offset by continuing annual cost-savings of $495.8 million per year, accruing to the same parties that face the familiarization costs. As explained elsewhere, the Fifth Circuit does not usually consider the “integral part” factor in its analysis. It is possible for a worker to be an employee in one line of business and an independent contractor in another.

• As explained in more detail below, providing such clarification for the regulated community would not narrow the scope of who is an FLSA employee as opposed to an independent contractor.
• You’ll find the equipment, services, and people within your construction field.
• Amounts to a 10-year annualized cost of $43.5 million at a discount rate of 3 percent or $52.8 million at a discount rate of 7 percent.
• Particular, several commenters, including United Food and Commercial Workers, Senator Patty Murray, and the State AGs contended that removing the “integral” factor would be contrary to established circuit court precedent.
• The Department believes this rule is likely to improve the welfare of both workers and businesses on the whole.
• First, commenters contended that elevating the two core factors is inconsistent with the economic reality test, which they asserted requires that factors be either unweighted or weighted equally.

According to the CWS, 55.5 percent of employees have a retirement account with their current employer; in addition, the ECEC found that employers pay 5.3 percent of employees’ total compensation in retirement benefits on average ($1.96/$37.03). If a worker shifts from employee to independent contractor status, that worker may no longer receive employer-provided retirement benefits, but may choose alternate personal investment options. As with health insurance, it is not clear whether retirement savings for such a worker would increase or decrease, but such a worker would likely need to take a more active role in saving for retirement vis-à-vis an employee with an employer-sponsored retirement plan.