DOL withdraws Trump-era FLSA employee classification rule
As expected, Biden administration cancelled Final DOL Regulation
TAX ALERT |
On May 5, 2021, the U.S. Department of Labor announced the withdrawal of the Trump-era final regulation on Independent Contractor Status under the Fair Labor Standards Act (FLSA), effective May 6, 2021 (Withdrawn Regulation).
The Withdrawn Regulation was originally published in the Federal Register on Jan. 7, 2021, and was slated to become effective March 8, 2021.1 On Jan. 20, 2021, the Biden administration’s ‘Regulatory Freeze Pending Review’ Memorandum2 directed the DOL to review the Withdrawn Regulation, and its effective date was delayed to May 7, 2021,3 pending such review. Effective May 6, after a notice and comment period, the Biden administration effectively cancelled the Withdrawn Regulation4 in its entirety without making any new proposals, thereby reinstating the multifactor test previously used by the DOL Wage and Hour Division to determine independent contractor status under the FLSA.5
Under the FLSA, covered employers are required to pay their nonexempt employees the Federal minimum wage for every hour worked and overtime pay for hours worked over 40 in a workweek. The FLSA’s minimum wage and overtime rules, however, do not apply to an individual performing services as an independent contractor.
The FLSA does not expressly define an independent contractor, and over the years, the courts have developed a number of ‘economic reality’ factors to be applied in determining independent contractor status. The Withdrawn Regulation reinterpreted and expanded the ‘economic realities’ factors in a manner seen by many as opening the door for employers to classify ‘gig’ workers as independent contractors.
In light of its cancellation, employers should review and adjust any actions they may have taken to implement the Withdrawn Rule.
186 FR 1168 (Jan. 7, 2021).
2January 20, 2021 memo from the Assistant to the President and Chief of Staff, titled ‘Regulatory Freeze Pending Review,’ 86 FR 7424.
386 FR at 12535 (March 7, 2021).
4The DOL stated in its May 5th announcement that:
[T]he guidance that the [Withdrawn Regulation] would have introduced as part 795 of Title 29 of the Code of Federal Regulations will not be introduced and the revisions that the [Withdrawn Regulation] would have made to 29 CFR 780.330(b) and 29 CFR 788.16(a) will not occur and their text will remain unchanged. The Department did not propose and is not now issuing regulatory guidance to replace the guidance that the Independent Contractor Rule would have introduced as part 795.
5Note that these rules are distinguishable from the IRS rules regarding employee versus independent contractor status for purposes of Federal income tax reporting and withholding.