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FMG Law Blog Line

New DOL Rule Aims To Allow Benefits For Independent Contractors

Posted on: January 8th, 2021

By: Justin Boron

Independent contractors can receive ‘employee’ type benefits without becoming “employees” under a rule finalized by the U.S. Department of Labor Wednesday.

The provision is part of a final DOL rule that re-vamps the independent contractor classification test. It aims to allow companies to make independent contractor opportunities more attractive without having to also accept the other financial and administrative burdens that accompany compliance with labor and employment laws that protect employees.

“For example, payment of proceeds owed into a worker’s own health plan or retirement account would not indicate an employment relationship,” the DOL wrote in response to comments received during the review process.

Of course, there are caveats.

First and foremost, all of the other required elements of the independent contractor relationship must be maintained. For example, the independent contractor must still exercise the appropriate degree of control over their work and opportunity for profit or loss as a result of personal investment. 

Second, a company risks the independent contractor status if the benefits too closely resemble the ones that the company provides its full and part-time employees.

The DOL stated: “providing a worker with the same employer-provided health or retirement plans on the terms that a business also gives its own employees may indicate the worker is not an independent contractor but rather an employee.” Additionally, paid leave or bonuses similar to those that employees receive also could jeopardize the independent contractor status.

The fact that benefits might need to be different and provided separately could dissuade smaller companies from even bothering. But the rule could provide an attractive incentive for large companies that rely heavily on independent contractors to perform services.

It remains to be seen if this rule will have a significant impact on labor strategy. But at the very least, it eliminates one element of the independent contractor test that many critics had called outdated.

To review the entire rule, visit https://www.dol.gov/agencies/whd/flsa/2021-independent-contractor

If you have questions or would like more information, please contact Justin Boron at [email protected].

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