On September 28, the Department of Labor (DOL) sent to the White House’s Office of Information and Regulatory Affairs (OIRA) for its review the final worker classification rule. The final rule is likely to base determination of whether a worker is an employee or an independent contractor on two primary factors: the worker’s control over his/her work process, and the worker’s opportunity for profit or loss.

The new rule, when it is finalized, would replace a 2024 rule. The economic realities rule it would replace gives equal consideration to multiple factors, including the nature and degree of workers’ control over their work; investments by the worker in the work (i.e., does the worker spend his/her own money on equipment, tools, advertising, etc.); whether the relationship is exclusive, short or long term; the integral nature of the work relative to the company’s core business; and the specialization or lack thereof of the work being performed.

Classification of a worker as an independent contractor or as an employee has significant implications for both employer and worker under the Fair Labor Standards Act (FLSA). Employees get FLSA protections relative to benefits eligibility, minimum wage and overtime rules, etc. Plus, the employer pays half of the worker’s FICA (Social Security/Medicare) taxes.

It usually takes OIRA a month or longer to review a proposed regulation ahead of finalization. OIRA can send the proposed final regulation back to the agency with instructions to make specified changes, ok its release in the form it was submitted for review, or reject it outright. Insiders believe that OIRA is likely to approve finalization of the worker classification regulation with minimal if any required changes. But timing is uncertain.

Prospects: Congressional Democrats are likely to challenge the final regulation with prospects for success of any such challenge heavily dependent on whether they gain control of the House, Senate or both after the November elections. It is also entirely possible the new final worker classification regulation will be challenged in court. Stay tuned for further developments.

NAIFA Staff Contact: Michael Hedge-Senior Director-Government Relations, at mhedge@naifa.org or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org