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In 2024, the Department of Labor (Department) published a final rule providing an analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). See 89 FR 1638 (2024 IC Rule). The 2024 IC Rule took effect on March 11, 2024. However, the 2024 IC Rule has been the subject of five separate legal challenges. In this rulemaking, the Department intends to rescind the 2024 IC rule and replace it with the analysis that the Department previously adopted in an earlier 2021 rule, with a few modifications. 91 FR 9932; see also 86 FR 1168 (2021 IC Rule). The Department has also proposed to modify regulations interpreting the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) to clarify that the analysis for determining employee or independent contractor status under the FLSA also applies under the FMLA and MSPA. 

Statement of Need:

In 2024, the Department of Labor (Department) published a final rule providing an analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). See 89 FR 1638 (2024 IC Rule). The 2024 IC Rule took effect on March 11, 2024. However, the 2024 IC Rule has been the subject of five separate legal challenges. In this rulemaking, the Department has proposed to rescind the 2024 IC rule and replace it with the analysis that the Department previously adopted in an earlier 2021 rule, with a few modifications. 91 FR 9932; see also 86 FR 1168 (2021 IC Rule). the Department has also proposed to modify regulations interpreting the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) to clarify that the analysis for determining employee or independent contractor status under the FLSA also applies under the FMLA and MSPA. 

Summary of the Legal Basis:

The Department’s authority to interpret the FLSA comes with its authority to administer and enforce it. See 29 U.S.C. 201-219. The Department’s authority to interpret the FMLA and MSPA is delegated by statute. 29 U.S.C. 2654 (FMLA); 29 U.S.C. 1861 (MSPA).

Alternatives:

The Department considered three alternatives to the proposed rule, listed below from least to most restrictive of independent contracting: (1) adoption of the common law control test, which applies in distinguishing between employees and independent contractors under various other federal laws; (2) adoption of the Wage and Hour Division’s current enforcement policy, which is comprised of sub-regulatory guidance from before 2021 applying a multifactor economic reality balancing test; and (3) adoption of an ABC test (which a number of states have adopted).

Anticipated Costs and Benefits:

The Department estimates that the proposed rule would impose an initial one-time regulatory familiarization cost of $488.2 million. However, the Department also estimates cost savings of $682.7 million per year attributable to increased clarity. Assuming that the proposed rule increases the number of independent contractors by 2 percent, the Department estimates benefits to workers from new labor force entry could amount to $17.6 billion over 10 years, with an additional $14.9 billion accruing to broader society in the form of taxes collected on the earnings of the new labor. On an annualized basis, the Department estimates that the benefits from increased labor force participation could amount to $3.25 billion per year at a 7 percent discount rate. See 91 FR 9962.

Risks:

Under development