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Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act

Collage of workers

The misclassification of employees as independent contractors is one of the most serious problems facing affected employees, employers and the U.S. economy. Misclassified workers are denied basic workplace protections including rights to minimum wage and overtime pay, making it harder for them to support themselves and their families. Lower pay caused by misclassification reduces workers’ purchasing power, which undermines the entire economy. Meanwhile, employers who comply with the law are at a competitive disadvantage when competing against employers who misclassify employees and pay them less than the law requires and fail to provide other employment-based worker protections.

For too many workers, misclassification causes lost wages, benefits, unemployment insurance, and workers’ compensation coverage. Even if they recognize that they are misclassified, many employees may be afraid to assert their employment rights because of retaliation. Through its enforcement, the Wage and Hour Division has found misclassification occurs in many industries including construction and health care—even dishwashers have been misclassified.   

The Department published a rule on this issue, Independent Contractor Status Under the Fair Labor Standards Act, on Jan. 7, 2021, during the prior Administration. The Department delayed the rule on March 4, 2021, and then withdrew it on May 6, 2021, believing that it was inconsistent with the Fair Labor Standards Act’s text and purpose.  However, on March 14, 2022, a district court vacated the Department’s rules to delay and withdraw the Independent Contractor Status Under the Fair Labor Standards Act rule.  The court determined that the prior Administration’s Independent Contractor Status Under the Fair Labor Standards Act rule took effect as of its original effective date, March 8, 2021, and remains in effect. 

The Department now plans to engage in rulemaking on determining employee or independent contractor status under the FLSA. We remain committed to ensuring that employees are recognized correctly when they are, in fact, employees so that they receive the protections the FLSA provides. At the same time, we recognize the important role legitimate independent contractors play in our economy.  We need to hear from workers and employers as we develop our proposal.  Therefore, we will hold public forums in June to hear diverse perspectives from those who may be affected by employee or independent contractor classification. 

Please consider joining one of our public forums this month to share your perspective and hear from others as we begin the rulemaking process. We believe that public input, especially from workers and employers, will ultimately make the rule better. Once a proposed rule is published in the Federal Register, there will be a notice and comment period allowing all interested parties an opportunity to review the proposal and provide formal written comments.  

 

Jessica Looman is the acting administrator for the Department of Labor's Wage and Hour Division. Follow the division on Twitter at @WHD_DOL.

 

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