DOL Delays Effective Date for Independent Contractor Final Regulations

Consistent with a directive by President Biden in a January 20, 2021-issued memorandum entitled, “Regulatory Freeze Pending Review,” the Department of Labor (DOL) Wage and Hour Division has finalized its proposal to delay until May 7, 2021, the effective date of final regulations on independent contractor status. The regulations were published January 7, 2021, in the Federal Register. Their intended purpose as described by the DOL was to clarify distinctions between employee and independent contractor status in employment situations.

Businesses sometimes use independent contractors to control costs and create efficiencies. Some businesses have run afoul of federal and state laws by classifying workers as independent contractors when they are actually employees. Because various definitions of “independent contractor” have emerged under federal and state laws, determining whether workers are independent contractors or employees has, under some circumstances, been confusing at times, resulting in inconsistent worker classifications. The delivery of employee benefits, such as retirement savings and certain other benefits, is often tied to a determination of independent contractor or employee status.

On February 5, 2021, the DOL issued a notice of proposed rulemaking in accordance with the presidential memorandum proposing to delay the effective date of the independent contractor rule to May 7, 2021, which would be 60 days beyond its original effective date. In its request for a delayed effective date, the DOL stated that this action will not have negative effects because the final regulations have not yet been implemented, and the existing public guidance—Wage and Hour Division Fact Sheet #13, Employment Relationship under the Fair Labor Standards Act (FLSA)—"will continue to be available to all.”