The U.S. Department of Labor (DOL) has issued a final rule that will have a significant impact on the test used to determine whether someone is an independent contractor or an employee under the Fair Labor Standards Act (FLSA).
The rule — aimed at addressing the misclassification of workers as independent contractors — could potentially lead to an increase in FLSA violations in home care.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Julie Su, acting secretary of labor, said in a statement. “This rule will help protect workers — especially those facing the greatest risk of exploitation — by making sure they are classified properly and that they receive the wages they’ve earned.”
During the Trump administration, the federal government established the 2021 Independent Contractor Rule. In the 2021 rule, there was a modification to the independent contractor test, which is the economic realities test under the FLSA.
The modifications made the test simpler, and likely easier for non-employers to establish independent contractors as truly independent and not misclassified.
Independent contractors are defined as those not economically dependent on an employer and in business for themselves, including self-employed or freelance workers.
Caregivers who work in non-medical home care for several different agencies at once are often determined to be independent contractors.
The new rule — among other things — emphasizes a “multifactor, totality-of-circumstances analysis” known as the economic reality test to determine a worker’s classification, according to the DOL.
The test considers various factors like profit or loss opportunity, investment, job permanence, control, the importance of the work to the employer and the worker’s skills.
“On the surface, these factors appear similar to the old test, which at times was a seven-factor test by the DOL and a six-factor test in the courts, resulting in varied interpretations of economic reality,” Angelo Spinola, the co-chair of the home health and home care industry group at the law firm Polsinelli, told Home Health Care News. “The key focus lies in the interpretation of these six factors as the DOL had initially proposed certain comments on each factor that would have expanded the test beyond its previous scope.”
For instance, Spinola pointed out that the DOL has changed how it views state requirements like background checks or training in determining employment status.
Previously, meeting these requirements was seen as a sign of being an employee. Now, the DOL says it doesn’t automatically mean employment. This change, Spinola believes, was made in part due to the federal government receiving over 55,000 relevant responses during the public comment period.
One intriguing aspect that Spinola pulled from the final rule is that these changes don’t solely impact independent contractors, they also affect joint employment.
“Determining joint employment status now hinges on meeting this economic realities test,” he said. “Although the DOL has asserted that there are no alterations to the joint employment test, this contradicts the impact on the economic realities test. In terms of industry impact, it significantly affects the franchise model and individual owners — especially in smaller agencies where owners make critical decisions about operations, pay practices, schedules and training. It has a pretty significant effect on home care.”
The nurse registry model and virtual marketplaces may also be affected, Spinola said, along with self-directed programs.
While the DOL says it’s not a big shift, more details should emerge in the coming months that will clarify the full impact, Spinola said.
The new rule is scheduled to take effect sometime in March.
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