A proposed regulation that would alter how the U.S. Department of Labor (DOL) assesses whether workers should be classified as employees or independent contractors under the Fair Labor Standards Act was released on October 13.
 
A proposed regulation that would alter how the U.S. Department of Labor (DOL) assesses whether workers should be classified as employees or independent contractors under the Fair Labor Standards Act was released on October 13.
If approved, the proposal will replace the current standard and give home builders and specialty trade contractors a more streamlined federal test for worker classification.
Most home builders hire independent specialty trade contractors to do much of their building work. This keeps the residential construction market dominated by small businesses. In actuality, a single-family house is built by a conventional home builder with the help of up to 30 subcontractors.

Assessment to Establish Worker Classification

The proposed rule would use an updated version of the “economic reality test” to determine if a person is really in business for themselves or financially dependent on their employer. There are six components to this “economic reality test”:
  1. Is the work performed an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  3. Is the relationship between the worker and employer permanent or indefinite?
  4. What is the nature and degree of the employer’s control?
  5. Does the worker use specialized skills to perform the work, and do those skills contribute to business-like initiative?
  6. Are investments by a worker capital or entrepreneurial in nature?