1168 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

DEPARTMENT OF LABOR 

Wage and Hour Division 

29 CFR Parts 780, 788 and 795 

RIN 1235–AA34 

Independent Contractor Status Under 

the Fair Labor Standards Act 

AGENCY: Wage and Hour Division, 

Department of Labor. 

ACTION: Final rule. 

SUMMARY: The U.S. Department of Labor 

(the Department) is revising its 

interpretation of independent contractor 

status under the Fair Labor Standards 

Act (FLSA or the Act) to promote 

certainty for stakeholders, reduce 

litigation, and encourage innovation in 

the economy. 

DATES: This final rule is effective on 

March 8, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Amy DeBisschop, Division of 

Regulations, Legislation, and 

Interpretation, Wage and Hour Division 

(WHD), U.S. Department of Labor, Room 

S–3502, 200 Constitution Avenue NW, 

Washington, DC 20210; telephone: (202) 

693–0406 (this is not a toll-free 

number). Copies of this final rule may 

be obtained in alternative formats (Large 

Print, Braille, Audio Tape, or Disc), 

upon request, by calling (202) 693–0675 

(this is not a toll-free number). TTY/ 

TDD callers may dial toll-free 1–877– 

889–5627 to obtain information or 

request materials in alternative formats. 

Questions of interpretation and/or 

enforcement of the agency’s regulations 

may be directed to the nearest WHD 

district office. Locate the nearest office 

by calling WHD’s toll-free help line at 

(866) 4US–WAGE ((866) 487–9243) 

between 8 a.m. and 5 p.m. in your local 

time zone, or logging onto WHD’s 

website for a nationwide listing of WHD 

district and area offices at http://

www.dol.gov/whd/america2.htm. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

The FLSA requires covered employers 

to pay their nonexempt employees at 

least the Federal minimum wage for 

every hour worked and overtime pay for 

every hour worked over 40 in a 

workweek, and it mandates that 

employers keep certain records 

regarding their employees. A worker 

who performs services for an individual 

or entity (‘‘person’’ as defined in the 

Act) as an independent contractor, 

however, is not that person’s employee 

under the Act. Thus, the FLSA does not 

require such person to pay an 

independent contractor either the 

minimum wage or overtime pay, nor 

does it require that person to keep 

records regarding that independent 

contractor. The Act does not define the 

term ‘‘independent contractor,’’ but it 

defines ‘‘employer’’ as ‘‘any person 

acting directly or indirectly in the 

interest of an employer in relation to an 

employee,’’ 29 U.S.C. 203(d), 

‘‘employee’’ as ‘‘any individual 

employed by an employer,’’ id. at 203(e) 

(subject to certain exceptions), and 

‘‘employ’’ as ‘‘includ[ing] to suffer or 

permit to work,’’ id. at 203(g). Courts 

and the Department have long 

interpreted the ‘‘suffer or permit’’ 

standard to require an evaluation of the 

extent of the worker’s economic 

dependence on the potential 

employer—i.e., the putative employer or 

alleged employer—and have developed 

a multifactor test to analyze whether a 

worker is an employee or an 

independent contractor under the FLSA. 

The ultimate inquiry is whether, as a 

matter of economic reality, the worker is 

dependent on a particular individual, 

business, or organization for work (and 

is thus an employee) or is in business 

for him- or herself (and is thus an 

independent contractor). 

This economic realities test and its 

component factors have not always been 

sufficiently explained or consistently 

articulated by courts or the Department, 

resulting in uncertainty among the 

regulated community. The Department 

believes that a clear articulation will 

lead to increased precision and 

predictability in the economic reality 

test’s application, which will in turn 

benefit workers and businesses and 

encourage innovation and flexibility in 

the economy. Accordingly, earlier this 

year the Department proposed to 

introduce a new part to Title 29 of the 

Code of Federal Regulations setting 

forth its interpretation of whether 

workers are ‘‘employees’’ or 

independent contractors under the Act. 

Having received and reviewed the 

comments to its proposal, the 

Department now adopts as a final rule 

the interpretive guidance set forth in the 

Notice of Proposed Rulemaking (NPRM) 

(85 FR 60600) largely as proposed. This 

regulatory guidance adopts general 

interpretations to which courts and the 

Department have long adhered. For 

example, the final rule explains that 

independent contractors are workers 

who, as a matter of economic reality, are 

in business for themselves as opposed to 

being economically dependent on the 

potential employer for work. The final 

rule also explains that the inquiry into 

economic dependence is conducted by 

applying several factors, with no one 

factor being dispositive, and that actual 

practices are entitled to greater weight 

than what may be contractually or 

theoretically possible. The final rule 

sharpens this inquiry into five distinct 

factors, instead of the five or more 

overlapping factors used by most courts 

and previously the Department. 

Moreover, consistent with the FLSA’s 

text, its purpose, and the Department’s 

experience administering and enforcing 

the Act, the final rule explains that two 

of those factors—(1) the nature and 

degree of the worker’s control over the 

work and (2) the worker’s opportunity 

for profit or loss—are more probative of 

the question of economic dependence or 

lack thereof than other factors, and thus 

typically carry greater weight in the 

analysis than any others. 

The regulatory guidance promulgated 

in this final rule regarding independent 

contractor status under the FLSA is 

generally applicable across all 

industries. As such, it replaces the 

Department’s previous interpretations of 

independent contractor status under the 

FLSA which applied only in certain 

contexts, found at 29 CFR 780.330(b) 

(interpreting independent contractor 

status under the FLSA for tenants and 

sharecroppers) and 29 CFR 788.16(a) 

(interpreting independent contractor 

status under the FLSA for certain 

forestry and logging workers). The 

Department believes this final rule will 

significantly clarify to stakeholders how 

to distinguish between employees and 

independent contractors under the Act. 

This final rule is considered to be an 

Executive Order 13771 deregulatory 

action. Details on the estimated 

increased efficiency and cost savings of 

this rule can be found in the regulatory 

impact analysis (RIA) in section VI. 

II. Background 

A. Relevant FLSA Definitions 

Enacted in 1938, the FLSA requires 

that, among other things, covered 

employers pay their nonexempt 

employees at least the Federal minimum 

wage for every hour worked and 

overtime pay for every hour worked 

over 40 in a workweek, and it mandates 

that employers keep certain records 

regarding their employees. See 29 U.S.C. 

206(a), 207(a) (minimum wage and 

overtime pay requirements); 29 U.S.C. 

211(c) (recordkeeping requirements). 

The FLSA does not define the term 

‘‘independent contractor.’’ The Act 

defines ‘‘employer’’ in section 3(d) to 

‘‘include[ ] any person acting directly or 

indirectly in the interest of an employer 

in relation to an employee,’’ 

‘‘employee’’ in section 3(e)(1) to mean, 

subject to certain exceptions, ‘‘any 


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1 29 U.S.C. 203(d), (e), (g). The Act defines a 

‘‘person’’ as ‘‘an individual, partnership, 

association, corporation, business trust, legal 

representative, or any organized group of persons.’’ 

29 U.S.C. 203(a). 

2For example, the Court noted that the 

slaughterhouse workers performed unskilled work 

‘‘on the production line.’’ 331 U.S. at 730. ‘‘The 

premises and equipment of [the employer] were 

used for the work,’’ indicating little investment by 

the workers. Id. ‘‘The group had no business 

organization that could or did shift as a unit from 

one slaughter-house to another,’’ indicating a 

permanent work arrangement. Id. ‘‘The managing 

official of the plant kept close touch on the 

operation,’’ indicating control by the alleged 

employer. Id. And ‘‘[w]hile profits to the boners 

depended upon the efficiency of their work, it was 

more like piecework than an enterprise that actually 

depended for success upon the initiative, judgment 

or foresight of the typical independent contractor.’’ 

Id. 

3The Treasury proposal was never finalized 

because Congress amended the SSA to foreclose the 

proposal. 

individual employed by an employer,’’ 

and ‘‘employ’’ in section 3(g) to include 

‘‘to suffer or permit to work.’’ 1 The 

Supreme Court has recognized that 

‘‘there is in the [FLSA] no definition 

that solves problems as to the limits of 

the employer-employee relationship 

under the Act.’’ Rutherford Food Corp. 

v. McComb, 331 U.S. 722, 728 (1947). 

The Supreme Court has interpreted 

the ‘‘suffer or permit’’ language to define 

FLSA employment to be broad and more 

inclusive than the common law 

standard. See Nationwide Mut. Ins. Co. 

v. Darden, 503 U.S. 318, 326 (1992). 

However, the Court also recognized that 

the Act’s ‘‘statutory definition[s] . . . 

have [their] limits.’’ Tony & Susan 

Alamo Found. v. Sec’y of Labor, 471 

U.S. 290, 295 (1985) (internal citation 

omitted); see also Walling v. Portland 

Terminal Co., 330 U.S. 148, 152 (1947) 

(‘‘The definition ‘suffer or permit to 

work’ was obviously not intended to 

stamp all persons as employees.’’). The 

Supreme Court specifically recognized 

that ‘‘[t]here may be independent 

contractors who take part in production 

or distribution who would alone be 

responsible for the wages and hours of 

their own employees.’’ Rutherford Food, 

331 U.S. at 729. Accordingly, Federal 

courts of appeals have uniformly held, 

and the Department has consistently 

maintained, that independent 

contractors are not ‘‘employees’’ for 

purposes of the FLSA. See, e.g., Saleem 

v. Corporate Transp. Group, Ltd., 854 

F.3d 131, 139–40 (2d Cir. 2017); Karlson 

v. Action Process Serv. & Private 

Investigation, LLC, 860 F.3d 1089, 1092 

(8th Cir. 2017). 

B. Economic Dependence and the 

Economic Reality Test 

1. Supreme Court Development of the 

Economic Reality Test 

As the NPRM explained, the U.S. 

Supreme Court explored the limits of 

the employer-employee relationship in a 

series of cases from 1944 to 1947 under 

three different Federal statutes: The 

FLSA, the National Labor Relations Act 

(NLRA), and the Social Security Act 

(SSA). 85 FR 60601 (summarizing NLRB 

v. Hearst Publications, Inc., 322 U.S. 

111 (1944); United States v. Silk, 331 

U.S. 704 (1947); Bartels v. Birmingham, 

332 U.S. 126 (1947); and Rutherford 

Food, 331 U.S. 722)). 

In Hearst, the Supreme Court held 

that the NLRA’s definition of 

employment was broader than that of 

the common law. 322 U.S. 123–25. 

Congress responded by amending the 

definition of employment under the 

NLRA on June 23, 1947, ‘‘with the 

obvious purpose of hav[ing] the 

[National Labor Relations] Board and 

the courts apply general agency 

principles in distinguishing between 

employees and independent contractors 

under the [NLRA].’’ NLRB v. United Ins. 

Co. of Am., 390 U.S. 254, 256 (1968). 

On June 16, 1947, one week before 

Congress amended the NLRA in 

response to Hearst, the Supreme Court 

decided Silk, which addressed the 

distinction between employees and 

independent contractors under the SSA. 

In that case, the Court relied on Hearst 

to hold that ‘‘economic reality,’’ as 

opposed to ‘‘technical concepts’’ of the 

common law standard alone, determines 

workers’ classification. 331 U.S. at 712– 

14. Although the Court found it to be 

‘‘quite impossible to extract from the 

[SSA] a rule of thumb to define the 

limits of the employer-employe[e] 

relationship,’’ it identified five factors as 

‘‘important for decision’’: ‘‘degrees of 

control, opportunities for profit or loss, 

investment in facilities, permanency of 

relation[,] and skill required in the 

claimed independent operation.’’ Id. at 

716. The Court added that ‘‘[n]o one 

[factor] is controlling nor is the list 

complete.’’ Id. One week after Silk and 

on the same day Congress amended the 

NLRA, the Court reiterated these five 

factors in Bartels, another case involving 

employee or independent contractor 

status under the SSA. In Bartels, the 

Court explained that under the SSA, 

employee status ‘‘was not to be 

determined solely by the idea of control 

which an alleged employer may or 

could exercise over the details of the 

service rendered to his business by the 

worker.’’ Id. Although ‘‘control is 

characteristically associated with the 

employer-employee relationship,’’ 

employees under ‘‘social legislation’’ 

such as the SSA are ‘‘those who as a 

matter of economic reality are 

dependent upon the business to which 

they render service.’’ Id. 

The same day as it decided Silk, the 

Court ruled in Rutherford Food that 

certain workers at a slaughterhouse 

were employees under the FLSA, and 

not independent contractors, by 

examining facts pertaining to the five 

factors identified in Silk.2 The Court 

also considered whether the work was 

‘‘a part of the integrated unit of 

production’’ (meaning whether the 

putative independent contractors were 

integrated into the assembly line 

alongside the company’s employees) to 

assess whether they were employees or 

independent contractors under the 

FLSA. Id. at 729–730. 

In November 1947, five months after 

Silk and Rutherford Food, the 

Department of the Treasury (Treasury) 

proposed regulations r defining when an 

individual was an independent 

contractor or employee under the SSA, 

which used a test that balanced the 

following factors: 

1. Degree of control of the individual; 

2. Permanency of relation; 

3. Integration of the individual’s work 

in the business to which he renders 

service; 

4. Skill required by the individual; 

5. Investment by the individual in 

facilities for work; and 

6. Opportunity of the individual for 

profit or loss. 

12 FR 7966. Factors one, two, and four 

through six corresponded directly with 

the five factors identified as being 

‘‘important for decision’’ in Silk, 331 

U.S. at 716, and the third factor 

corresponded with Rutherford Food’s 

consideration of the fact that the 

workers were ‘‘part of an integrated unit 

of production.’’ 331 U.S. at 729. The 

Treasury proposal further relied on 

Bartels, 332 U.S. at 130, to apply these 

factors to determine whether a worker 

was ‘‘dependent as a matter of economic 

reality upon the business to which he 

renders services.’’ 12 FR 7966.3

Congress replaced the interpretations 

of the definitions of ‘‘employee’’ 

adopted in Hearst for the NLRA and in 

Silk and Bartels for the SSA ‘‘to 

demonstrate that the usual common-law 

principles were the keys to meaning.’’ 

Darden, 503 U.S. at 324–25. However, 

Congress did not similarly amend the 

FLSA. Thus, the Supreme Court stated 

in Darden that the scope of employment 

under the FLSA remains broader than 

that under common law and is 

determined not by the common law but 

instead by the economic reality of the 

relationship at issue. See id. Since 

implicitly doing so in Rutherford Food, 


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4As explained below, versions of this multifactor 

economic realty test have also been enforced and 

articulated by the Department in subregulatory 

guidance since the 1950s. 

the Court has not again applied (or 

rejected the application of) the Silk 

factors to an FLSA classification 

question. 

2. Application of the Economic Reality 

Test by Federal Courts of Appeals 

As the NPRM explained, in the 1970s 

and 1980s Federal courts of appeals 

began to adopt versions of a multifactor 

‘‘economic reality’’ test based on Silk, 

Rutherford Food, and Bartels and 

similar to Treasury’s 1947 proposed 

SSA regulation to analyze whether a 

worker was an employee or an 

independent contractor under the FLSA. 

See 85 FR 60603.4 Drawing on the 

Supreme Court precedent discussed 

above, courts have recognized that the 

heart of the inquiry is whether ‘‘as a 

matter of economic reality’’ the workers 

are ‘‘dependent upon the business to 

which they render service.’’ Usery v. 

Pilgrim Equip. Co., 527 F.2d 1308, 1311 

(5th Cir. 1976) (quoting Bartels, 332 U.S. 

at 130). Some courts have clarified that 

this question of economic dependence 

may be boiled down to asking ‘‘whether, 

as a matter of economic reality, the 

workers depend upon someone else’s 

business for the opportunity to render 

service or are in business for 

themselves.’’ Saleem, 854 F.3d at 139 

(internal quotation marks and citations 

omitted). Courts have also explained 

that a non-exhaustive set of factors— 

derived from Silk and Rutherford 

Food—shape and guide this inquiry. 

See, e.g., Usery, 527 F.2d at 1311 

(identifying ‘‘[f]ive considerations 

[which] have been set out as aids to 

making the determination of 

dependence, vel non’’); Real v. Driscoll 

Strawberry Assocs., Inc., 603 F.2d 748, 

754 (9th Cir. 1979) (articulating a sixfactor test). 

In Driscoll, the Ninth Circuit Court of 

Appeals described its six-factor test as 

follows: 

1. The degree of the alleged 

employer’s right to control the manner 

in which the work is to be performed; 

2. the alleged employee’s opportunity 

for profit or loss depending on his 

managerial skill; 

3. the alleged employee’s investment 

in equipment or materials required for 

his task, or his employment of helpers; 

4. whether the service rendered 

requires a special skill; 

5. the degree of permanency of the 

working relationship; and 

6. whether the service rendered is an 

integral part of the alleged employer’s 

business. Id. at 754. 

Most courts of appeals articulate a 

similar test, but application between 

courts may vary significantly. Compare, 

e.g., Sec’y of Labor v. Lauritzen, 835 

F.2d 1529, 1534–35 (7th Cir. 1987) 

(applying six-factor economic reality 

test to hold that pickle pickers were 

employees under the FLSA), with 

Donovan v. Brandel, 736 F.2d 1114, 

1117 (6th Cir. 1984) (applying the same 

six-factor economic reality test to hold 

that pickle pickers were not employees 

under the FLSA). For example, the 

Second Circuit has analyzed 

opportunity for profit or loss and 

investment (the second and third factors 

listed above) together as one factor. See, 

e.g., Brock v. Superior Care, Inc., 840 

F.2d 1054, 1058 (2d Cir. 1988). The 

Fifth Circuit has not adopted the sixth 

factor listed above, which analyzes the 

integrality of the work, as part of its 

standard, see, e.g., Usery, 527 F.2d at 

1311, but has at times assessed 

integrality as an additional factor, see, 

e.g. Hobbs v. Petroplex Pipe & Constr., 

Inc., 946 F.3d 824, 836 (5th Cir. 2020). 

The NPRM highlighted noteworthy 

modifications some courts of appeals 

have made to the economic reality 

factors as originally articulated in 1947 

by the Supreme Court. See 85 FR 

60603–04. First, the ‘‘skill required’’ 

factor identified in Silk, 331 U.S. at 716, 

is now articulated more expansively by 

some courts to include ‘‘initiative.’’ See, 

e.g., Parrish, 917 F.3d at 379 (‘‘the skill 

and initiative required in performing the 

job’’); Karlson, 860 F.3d at 1093 (same); 

Superior Care, 840 F.2d at 1058–59 

(‘‘the degree of skill and independent 

initiative required to perform the 

work’’). 

Second, Silk analyzed workers’ 

investments, 331 U.S. at 717–19. 

However, the Fifth Circuit has revised 

the ‘‘investment’’ factor to instead 

consider ‘‘the extent of the relative 

investments of the worker and the 

alleged employer.’’ Hopkins, 545 F.3d at 

343. Some other circuits have adopted 

this ‘‘relative investment’’ approach but 

continue to use the phrase ‘‘worker’s 

investment’’ to describe the factor. See, 

e.g., Keller v. Miri Microsystems LLC, 

781 F.3d 799, 810 (6th Cir. 2015); Dole 

v. Snell, 875 F.2d 802, 805 (10th Cir. 

1989). 

Third, although the permanence 

factor under Silk was understood to 

mean the continuity and duration of 

working relationships, see 12 FR 7967, 

some courts of appeals have expanded 

this factor to also consider the 

exclusivity of such relationships. See, 

e.g., Scantland, 721 F.3d at 1319; Keller, 

781 F.3d at 807. 

Finally, Rutherford Food’s 

consideration of whether work is ‘‘part 

of an integrated unit of production,’’ 331 

U.S. at 729, has now been replaced by 

many courts of appeals by consideration 

of whether the service rendered is 

‘‘integral,’’ which those courts have 

applied as meaning important or central 

to the potential employer’s business. 

See, e.g., Verma v. 3001 Castor, Inc., 937 

F.3d 221, 229 (3rd Cir. 2019) 

(concluding that workers’ services were 

integral because they were the providers 

of the business’s ‘‘primary offering’’); 

Acosta v. Off Duty Police Servs., Inc., 

915 F.3d 1050, 1055 (6th Cir. 2019) 

(concluding that services provided by 

workers were ‘‘integral’’ because the 

putative employer ‘‘built its business 

around’’ those services); McFeeley v. 

Jackson Street Entertainment, LLC, 825 

F.3d 235, 244 (4th Cir. 2016) 

(considering ‘‘the importance of the 

services rendered to the company’s 

business’’). 

Courts of appeals have cautioned 

against the ‘‘mechanical application’’ of 

the economic reality factors. See, e.g., 

Saleem, 854 F.3d at 139. ‘‘Rather, each 

factor is a tool used to gauge the 

economic dependence of the alleged 

employee, and each must be applied 

with this ultimate concept in mind.’’ 

Hopkins, 545 F.3d at 343. Further, 

courts of appeals make clear that the 

analysis should draw from the totality of 

circumstances, with no single factor 

being determinative by itself. See, e.g., 

Keller, 781 F.3d at 807 (‘‘No one factor 

is determinative.’’); Baker, 137 F.3d at 

1440 (‘‘None of the factors alone is 

dispositive; instead, the court must 

employ a totality-of-the-circumstances 

approach.’’). 

3. Application of the Economic Reality 

Test by WHD 

Since at least 1954, WHD has applied 

variations of this multifactor analysis 

when considering whether a worker is 

an employee under the FLSA or an 

independent contractor. See WHD 

Opinion Letter (Aug. 13, 1954) 

(applying six factors very similar to the 

six economic reality factors currently 

used by courts of appeals). In 1964, 

WHD stated, ‘‘The Supreme Court has 

made it clear that an employee, as 

distinguished from a person who is 

engaged in a business of his own, is one 

who as a matter of economic reality 

follows the usual path of an employee 

and is dependent on the business which 

he serves.’’ WHD Opinion Letter FLSA– 

795 (Sept. 30, 1964). 

Over the years since, WHD has issued 

numerous opinion letters applying a 

multifactor analysis very similar to the 

multifactor economic reality test courts 

use (with some variation) to determine 

whether workers are employees or 


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5See, e.g., WHD Opinion Letter FLSA2019–6 at 

4 (Apr. 29, 2019); WHD Opinion Letter, 2002 WL 

32406602, at *2 (Sept. 5, 2002); WHD Opinion 

Letter, 2000 WL 34444342, at *3 (Dec. 7, 2000); 

WHD Opinion Letter, 2000 WL 34444352, at *1 (Jul. 

5, 2000); WHD Opinion Letter, 1999 WL 1788137, 

at *1 (Jul. 12, 1999); WHD Opinion Letter, 1995 WL 

1032489, at *1 (June 5, 1995); WHD Opinion Letter, 

1995 WL 1032469, at *1 (Mar. 2, 1995); WHD 

Opinion Letter, 1986 WL 740454, at *1 (June 23, 

1986); WHD Opinion Letter, 1986 WL 1171083, at 

*1 (Jan. 14, 1986); WHD Opinion Letter WH–476, 

1978 WL 51437, at *2 (Oct. 19, 1978); WHD 

Opinion Letter WH–361, 1975 WL 40984, at *1 

(Oct. 1, 1975); WHD Opinion Letter (Sept. 12, 1969); 

WHD Opinion Letter (Oct. 12, 1965). 

6Fact Sheet #13 is available at https://

www.dol.gov/sites/dolgov/files/WHD/legacy/files/ 

whdfs13.pdf. 

independent contractors.5 WHD has also 

promulgated regulations applying a 

multifactor analysis for independent 

contractor status under the FLSA in 

certain specific industries. See, e.g., 29 

CFR 780.330(b) (applying a six factor 

economic reality test to determine 

whether a sharecropper or tenant is an 

independent contractor or employee 

under the Act); 29 CFR 788.16(a) 

(applying a six factor economic reality 

test in forestry and logging operations 

with no more than eight employees). 

Further, WHD has promulgated a 

regulation applying a multifactor 

economic reality analysis for 

determining independent contractor 

status under the Migrant and Seasonal 

Agricultural Worker Protection Act 

(MSPA). 29 CFR 500.20(h)(4). 

The Department’s sub-regulatory 

guidance, WHD Fact Sheet #13, 

‘‘Employment Relationship under the 

Fair Labor Standards Act (FLSA)’’ (Jul. 

2008), similarly stated that, when 

determining whether an employment 

relationship exists under the FLSA, 

common law control is not the exclusive 

consideration. Instead, ‘‘it is the total 

activity or situation which controls’’; 

and ‘‘an employee, as distinguished 

from a person who is engaged in a 

business of his or her own, is one who, 

as a matter of economic reality, follows 

the usual path of an employee and is 

dependent on the business which he or 

she serves.’’ 6 The fact sheet identified 

seven economic reality factors; in 

addition to factors that are similar to the 

six factors identified above, it also 

considered the worker’s ‘‘degree of 

independent business organization and 

operation.’’ On July 15, 2015, WHD 

issued Administrator’s Interpretation 

No. 2015–1, ‘‘The Application of the 

Fair Labor Standards Act’s ‘Suffer or 

Permit’ Standard in the Identification of 

Employees Who Are Misclassified as 

Independent Contractors’’ (AI 2015–1). 

AI 2015–1 provided guidance regarding 

the employment relationship under the 

FLSA and the application of the six 

economic realities factors. AI 2015–1 

was withdrawn on June 7, 2017 and is 

no longer in effect. 

WHD’s most recent opinion letter 

addressing this issue, from 2019, 

generally applied the principles and 

factors similar to those described in the 

prior opinion letters and Fact Sheet #13, 

but not the ‘‘independent business 

organization’’ factor because it did not 

add to the analysis as a separate factor 

and was ‘‘[e]ncompassed within’’ the 

other factors. It also stated that the 

investment factor should focus on the 

‘‘amount of the worker’s investment in 

facilities, equipment, or helpers.’’ The 

opinion letter addressed the FLSA 

classification of service providers who 

used a virtual marketplace company to 

be referred to end-market consumers to 

whom the services were actually 

provided. WHD concluded that the 

service providers appeared to be 

independent contractors and not 

employees of the virtual marketplace 

company. See WHD Opinion Letter 

FLSA2019–6 at 7. WHD found that it 

was ‘‘inherently difficult to 

conceptualize the service providers’ 

‘working relationship’ with [the virtual 

marketplace company], because as a 

matter of economic reality, they are 

working for the consumer, not [the 

company].’’ Id. Because ‘‘[t]he facts . . . 

demonstrate economic independence, 

rather than economic dependence, in 

the working relationship between [the 

virtual marketplace company] and its 

service providers,’’ WHD opined that 

they were not employees of the 

company under the FLSA but rather 

were independent contractors. Id. at 9. 

As explained below, the Department’s 

prior interpretations of independent 

contractor status, which themselves 

have evolved over time, are subject to 

similar limitations as that of court 

opinions, and the Department believes 

that stakeholders would benefit from 

clarification. For these reasons, the 

Department proposed promulgating a 

clearer and more consistent standard for 

evaluating whether a worker is an 

employee or independent contractor 

under the FLSA and is now finalizing 

that proposal, with some modifications 

based on comments received. 

C. The Department’s Proposal 

On September 25, 2020, the 

Department published the NPRM in the 

Federal Register. The Department 

proposed to adopt an ‘‘economic 

reality’’ test to determine a worker’s 

status as an FLSA employee or an 

independent contractor. The test 

considers whether a worker is in 

business for himself or herself 

(independent contractor) or is instead 

economically dependent on an 

employer for work (employee). The 

Department further identified two ‘‘core 

factors’’: The nature and degree of the 

worker’s control over the work; and the 

worker’s opportunity for profit or loss 

based on initiative, investment, or both. 

The Department explained it was 

proposing to emphasize these factors 

because they are the most probative of 

whether workers are economically 

dependent on someone else’s business 

or are in business for themselves. The 

proposal identified three other factors to 

also be considered, though they are less 

probative than the core factors: The 

amount of skill required for the work, 

the degree of permanence of the 

working relationship between the 

individual and the potential employer, 

and whether the work is part of an 

integrated unit of production. The 

Department further proposed to advise 

that the actual practice is more 

probative than what may be 

contractually or theoretically possible in 

determining whether a worker is an 

employee or an independent contractor. 

D. Comments 

The Department solicited comments 

on all aspects of the proposed rule. 

More than 1800 individuals and 

organizations timely commented on the 

Department’s NPRM during the thirtyday comment period that ended on 

October 26, 2020. The Department 

received comments from employers, 

workers, industry associations, worker 

advocacy groups, and unions, among 

others. All timely comments may be 

viewed at the website 

www.regulations.gov, docket ID WHD– 

2020–0007. 

Of the comments received, the 

Department received approximately 230 

comments from workers who identified 

themselves as independent contractors 

(not including the over 900 comments 

received from Uber drivers discussed 

below). Of those, the overwhelming 

majority expressed support for the 

NPRM. These individuals identified 

themselves as freelancers or 

independent contractors in jobs 

including translator, journalist, 

consultant, musician, and many others. 

Among this group of commenters, over 

200 expressed support for the proposed 

rule, while only 8 opposed it. The 

remaining individuals in this group did 

not express a specific position. Uber 

drivers submitted over 900 comments. 

While many expressed views on Uber 

corporate policies and not on the NPRM 

itself, the majority of these drivers who 

addressed the NRPM supported the 

Department’s proposal. The Department 

also received a number of other 


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comments that are beyond the scope of 

this rulemaking. For example, several 

commenters expressed opinions related 

to the issues addressed in the 

Department’s proposal but that were 

specific to state legislation or employer 

policies. Significant issues raised in the 

timely comments received are discussed 

below, along with the Department’s 

response to those comments. 

III. Need for Rulemaking 

The NPRM explained that the 

Department has never promulgated a 

generally-applicable regulation 

addressing who is an independent 

contractor and thus not an employee 

under the FLSA. Instead, as described 

above, the Department has issued and 

revised guidance since at least 1954, 

using different variations of a 

multifactor economic reality test that 

analyzes economic dependence to 

distinguish independent contractors 

from employees. Such guidance reflects, 

in large part, application of the general 

principles of the economic reality test 

by Federal courts of appeals. Such 

guidance, however, did not reflect any 

public input. Indeed, the NPRM kicked 

off the Department’s first ever noticeand-comment rulemaking to provide a 

generally applicable interpretation of 

independent contractor status under the 

FLSA. As recounted just above, the 

Department received many comments 

from stakeholders who are actually 

impacted by FLSA classification 

decisions, which are valuable 

information and insight that the 

Department has not previously gathered 

and many of which reinforced the 

Department’s view that more clarity is 

needed in this area. 

The Department explained in the 

NPRM preamble that prior articulations 

of the test have proven to be unclear and 

unwieldy for the four following reasons. 

First, the test’s overarching concept of 

‘‘economic dependence’’ is underdeveloped and sometimes 

inconsistently applied, rendering it a 

source of confusion. Second, the test is 

indefinite in that it makes all facts 

potentially relevant without guidance 

on how to prioritize or balance different 

and sometimes competing 

considerations. Third, inefficiency and 

lack of structure in the test further stem 

from blurred boundaries between the 

factors. Fourth, these shortcomings have 

become more apparent over time as 

technology, economic conditions, and 

work relationships have evolved. 

The Department thus proposed to 

promulgate a regulation that would 

clarify and sharpen the contours of the 

economic reality test used to determine 

independent contractor classification 

under the FLSA. The NPRM explained 

that such a regulation would provide 

much needed clarity and encourage (or 

at least stop deterring) flexible work 

arrangements that benefit both 

businesses and workers. 

Commenters in the business 

community and freelance workers 

generally agreed with the Department 

that the multifactor balancing test is 

confusing and needs clarification. The 

National Retail Federation (NRF) 

complained that ‘‘existing tests for 

independent contractor status tend to 

have a large number of factors which 

can be nebulous, overlapping, and even 

irrelevant to the ultimate inquiry.’’ The 

Workplace Policy Institute of Littler 

Mendelson, P.C. (WPI) stated that 

‘‘[b]oth the Department and the courts 

have struggled to define ‘dependence’ ’’ 

in the modern economy—resulting in 

confusion, unpredictability and 

inconsistent results.’’ The Society for 

Human Resource Management (SHRM) 

echoed this sentiment, writing ‘‘the 

business community and workers are 

left applying numerous factors in a 

variety of ways that is mired in 

uncertainty and, therefore, unnecessary 

risk.’’ The U.S. Chamber of Commerce 

stated that ‘‘[t]he confusion regarding 

whether a worker is properly classified 

as an employee or an independent 

contractor has long been a vexing 

problem for the business community, 

across many different industries and 

work settings.’’ See also, e.g., World 

Floor Covering Association (WFCA) 

(‘‘The current test has resulted in 

inconsistent decisions, much confusion, 

and unnecessary costs.’’). Numerous 

individual freelancers and organizations 

that represent freelance workers also 

stated they would welcome ‘‘greater 

clarity and predictability in the 

application of the ‘economic realities’ 

test.’’ Coalition to Promote Independent 

Entrepreneurs (CPIE); see also Coalition 

of Practicing Translators & Interpreters 

of California (CoPTIC) (requesting 

‘‘greater clarity in Federal law’’). 

Individual freelancers generally 

welcomed greater legal clarity. For 

example, one individual commenter 

wrote ‘‘to express [her] support for this 

proposed rule. As someone who has 

enjoyed freedom and flexibility as a 

freelancer for 20 years, this would be a 

welcome clarification.’’ Another 

individual freelancer stated that ‘‘[t]he 

clarity and updating of [the FLSA] 

through this NPRM is long overdue and 

the DOL should issue ruling on 

independent contracting. . . .’’ 

These supportive commenters 

generally agreed with the Department 

that additional clarity would encourage 

flexible work arrangements that benefit 

businesses and workers alike. For 

example, the Coalition for Workforce 

Innovation (CWI) asserted that 

additional clarity of the economic 

reality test would ‘‘allow workers and 

businesses to pursue [ ] mutually 

beneficial opportunities as the United 

States economy evolves with 

technology.’’ Fight for Freelancers 

explained that its members value 

flexibility that comes with working as 

independent contractors and supported 

the Department’s ‘‘efforts to protect [its 

members’] classification.’’ 

Some commenters who opposed this 

rulemaking questioned the need for a 

regulation on this topic. The Southwest 

Regional Council of Carpenters 

(SWRCC) stated that the ‘‘[t]he first of 

the Rule’s shortcomings is its 

assumption that a new rule is necessary 

in the first place,’’ and the American 

Federation of Labor & Congress of 

Industrial Organization (AFL–CIO) 

asserted that the Department’s ‘‘quest 

for certainty . . . is quixotic.’’ Mr. 

Edward Tuddenham, an attorney, 

contended that the current test is 

‘‘generally consistent and predictable’’ 

and thus does not need further 

clarification. He and others repeatedly 

questioned the Department’s reasons for 

rulemaking by asserting that the 

Department did not identify cases where 

courts reached incorrect outcomes. 

Rather than focus on the outcomes in 

particular cases, the NPRM highlighted 

inconsistent or confusing reasoning in 

many decisions to explain why the 

regulated community would benefit 

from regulatory clarity. See 85 FR 

60605. Mr. Tuddenham and others also 

provided thoughtful and detailed 

comments criticizing specific aspects of 

the reasons presented in the NPRM’s 

need for rulemaking discussion. The 

following discussion retraces those 

reasons and responds to these 

criticisms. 

A. Confusion Regarding the Meaning of 

Economic Dependence 

The NPRM explained that 

undeveloped analysis and inconsistency 

cloud the application of ‘‘economic 

dependence,’’ the touchstone of the 

economic reality test. 85 FR 60605. The 

Department and some courts have 

attempted to furnish a measure of clarity 

by explaining, for example, that the 

proper inquiry is ‘‘ ‘whether the workers 

are dependent on a particular business 

or organization for their continued 

employment’ in that line of business,’’ 

Brock v. Mr. W Fireworks, Inc., 814 F.2d 

1042, 1054 (5th Cir. 1987) (quoting 

DialAmerica, 757 F.2d at 1385), or 

instead ‘‘are in business for 

themselves,’’ Saleem, 854 F.3d at 139. 


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7The Thibault court also highlighted the fact that 

Mr. Thibault worked for only 3 months—although 

he intended to work for 7 or 8 months—before 

being fired. See 612 F.3d at 846, 849. In contrast, 

the splicers in Cromwell worked approximately 11 

months. See 348 F. App’x at 58. 

8The Thibault case recognized that ‘‘[a]n 

individual’s wealth is not a solely dispositive factor 

in the economic dependence question.’’ 612 F.3d at 

849 n.4. This confirms that wealth was in fact a 

meaningful consideration, which runs against other 

cases explaining that dependence on wealth is an 

inappropriate lens. 

But the Department and many courts 

have often applied the test without 

helpful clarification of the meaning of 

the economic dependency that they are 

seeking. 

The NPRM explained that the lack of 

explanation of economic dependence 

has sometimes led to inconsistent 

approaches and results and highlighted 

as an example the apparently 

inconsistent results in Cromwell v. 

Driftwood Elec. Contractor, Inc., 348 F. 

App’x 57 (5th Cir. 2009) (holding that 

cable splicers hired by Bellsouth to 

perform post-Katrina repairs were 

employees), and Thibault v. BellSouth 

Telecommunication, 612 F.3d 843 (5th 

Cir. 2010) (holding that cable splicer 

hired by same company under a very 

similar arrangement was an 

independent contractor). See 85 FR 

60605. The Thibault court distinguished 

its result from Cromwell in part by 

highlighting Mr. Thibault’s significant 

income from (1) his own sales company 

that had profits of approximately 

$500,000, (2) ‘‘eight drag-race cars [that] 

generated $1,478 in income from racing 

professionally[,]’’ and (3) ‘‘commercial 

rental property that generated some 

income.’’ Thibault, 612 F.3d at 849. 

While these facts indicate that Mr. 

Thibault may have been in business for 

himself as a manager of a sales business, 

drag-race cars, and commercial 

properties, they are irrelevant as to 

whether he was in business for himself 

as a cable splicer.7 The Thibault court 

nonetheless assigned these facts 

substantial weight because it 

understood economic dependence to 

mean dependence for income or wealth, 

which is incompatible with the 

dependence-for-work approach that 

other courts and the Department 

apply.8 See, e.g., Off Duty Police, 915 

F.3d at 1058 (‘‘[W]hether a worker has 

more than one source of income says 

little about that worker’s employment 

status.’’); Halferty, 821 F.2d at 268 (‘‘[I]t 

is not dependence in the sense that one 

could not survive without the income 

from the job that we examine, but 

dependence for continued 

employment’’); DialAmerica, 757 F.2d 

at 1385 (‘‘The economic-dependence 

aspect of the [economic reality] test does 

not concern whether the workers at 

issue depend on the money they earn 

for obtaining the necessities of life.’’). 

As the DialAmerica court explained, the 

dependence-for-income approach 

‘‘would lead to a senseless result’’ 

because a wealthy individual who had 

an independent source of income would 

be an independent contractor even 

though a poorer individual who worked 

for the same company under the same 

work arrangement is an employee. 757 

F.2d at 1385 n.11. Mr. Tuddenham 

initially defended the reasoning in 

Thibault, but later listed that case as an 

example of ‘‘the occasional erroneous 

application of the [economic reality] 

test.’’ 

The NPRM also highlighted the 

decision in Parrish v. Premier 

Directional Drilling, 917 F.3d 369, as an 

example of inconsistent articulation of 

economic dependence. In that case, the 

court first applied a dependence-forwork concept to analyze the control 

factor and then explicitly departed from 

that framework in favor of a 

dependence-for-income analysis of the 

opportunity factor. See 85 FR 60606. 

The Parrish court impliedly took a third 

concept of dependence to analyze the 

investment factor through a ‘‘side-byside comparison’’ of each worker’s 

individual investment to that of the 

alleged employer.’’ 917 F.3d at 383. AI 

2015–1 took the same approach and 

explained that ‘‘it is the relative 

investments that matter’’ because ‘‘[i]f 

the worker’s investment is relatively 

minor, that suggests that the worker and 

the employer are not on similar footing 

and that the worker may be 

economically dependent on the 

employer.’’ The comparative analysis of 

investments thus appears to rely on a 

concept of economic dependence that 

means ‘‘not on a similar footing,’’ which 

is different from the ‘‘dependence for 

work’’ concept that the Department 

believes to be correct. 

In summary, courts and the 

Department typically economic 

dependence as ‘‘dependence for work,’’ 

but have sometimes applied other 

concepts of dependence to analyze 

certain factors, such as ‘‘dependence for 

income’’ and ‘‘not on similar footing.’’ 

Because economic dependence is the 

ultimate inquiry of FLSA employment, 

these different conceptions result in 

essentially different tests that confuse 

the regulated community. Accordingly, 

the economic reality test needs a more 

developed and dependable touchstone 

at its heart. 

B. Lack of Focus in the Multifactor 

Balancing Test 

The NPRM explained that the 

versions of the multifactor economic 

reality test used by courts since at least 

the 1980s and the Department since the 

1950s lack clear, generally applicable 

guidance about how to balance the 

multiple factors and the countless facts 

encompassed therein. See 85 FR 

60606.The test’s lack of guidance leads 

to uncertainty regarding ‘‘which aspects 

of ‘economic reality’ matter, and why.’’ 

Lauritzen, 835 F.2d at 1539 (Easterbrook 

J., concurring). 

As examples of such uncertainty, the 

NPRM highlighted court decisions 

analyzing economic reality factors to 

reach an overall decision about a 

worker’s classification without 

meaningful explanation of how they 

balanced the factors to reach the final 

decision. 85 FR 60606 (citing, e.g., 

Parrish, 917 F.3d at 380; Chao v. MidAtl. Installation Servs., Inc., 16 F. App’x 

104, 108 (4th Cir. 2001); and Snell, 875 

F.2d at 912). Even where many facts and 

factors support both sides of the 

classification inquiry, courts have not 

explained how they balanced the 

competing considerations. See, e.g., 

Acosta v. Paragon Contractors Corp., 

884 F.3d 1225, 1238 (10th Cir. 2018); 

Iontchev v. AAA Cab. Services, 685 F. 

App’x 548, 550 (9th Cir. 2017). The 

NPRM thus identified a need for 

guidance on which factors are most 

probative. 

Even some commenters critical of the 

Department’s approach in the NPRM 

conceded that the test as currently 

applied can create considerable 

ambiguity. Mr. Tuddenham asserted 

that the lack of general guidance 

regarding how to balance factors is ‘‘an 

unavoidable function of determining 

something as nebulous as ‘economic 

dependence.’ ’’ See also Farmworker 

Justice (‘‘[T]he test, as currently applied, 

creates necessary ambiguity.’’). The 

Department disagrees that the concept 

of ‘‘economic dependence’’ is 

necessarily ‘‘nebulous.’’ FLSA 

employment itself depends on economic 

dependence, and nothing in the statute 

requires that this standard be nebulous 

and thus unmanageable. See Usery, 527 

F.2d at 1311 (‘‘It is dependence that 

indicates employee status.’’). Instead, 

the Department believes the correct 

concept of economic dependence 

tangibly defines FLSA employment to 

include individuals who are dependent 

on others for work, and to exclude 

individuals who are, as a matter of 

economic reality, in business for 

themselves. See Saleem, 854 F.3d at 

139. The Department thus believes it is 


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9See, e.g., Selker Bros., 949 F.2d at 1295 

(concluding that the skill factor weighed towards 

employee classification due to ‘‘the degree of 

control exercised by [the potential employer] over 

the day-to-day operation’’); Baker, 137 F.3d at 1443 

(finding that the skill factor weighed towards 

employee classification where skilled welders ‘‘are 

told what to do and when to do it’’); Superior Care, 

840 F.2d at 1060 (finding that the skill factor 

weighed towards employee classification for skilled 

nurses because ‘‘Superior Care in turn controlled 

the terms and conditions of the employment 

relationship’’). 

10Some courts of appeal continue to analyze skill 

rather than control as part of the skill factor. See, 

e.g., Paragon, 884 F3d at 1235 (considering ‘‘the 

degree of skill required to perform the work’’); see 

also Iontchev, 685 F. App’x at 550 (asking ‘‘whether 

services rendered . . . require[d] a special skill’’); 

Keller, 791 F.3d at 807 (analyzing ‘‘the degree of 

skill required’’). 

11As the NPRM explained, this presumption that 

firms would control all important services on which 

they rely may rest on a mistaken premise because, 

for example, manufacturers routinely have critical 

parts and components produced and delivered by 

wholly separate companies. 85 FR 60608. And 

companies whose business is to connect 

independent service providers with customers 

would find those service providers to be important 

even though they are independent from the 

company’s business. See State Dep’t of 

Employment, Training & Rehab., Employment Sec. 

Div. v. Reliable Health Care Servs. of S. Nevada, 

Inc., 983 P.2d 414, 419 (Nev. 1999) (‘‘[W]e cannot 

ignore the simple fact that providing patient care 

and brokering workers are two distinct 

businesses.’ ’’) 

possible to provide generally applicable 

guidance regarding how to consider and 

balance the economic reality factors to 

assess this concept of economic 

dependence. 

C. Confusion and Inefficiency Due to 

Overlapping Factors 

The NPRM next explained that courts 

and the Department have articulated the 

economic reality factors such that they 

have overlapping coverage, which 

undermines the structural benefits of a 

multifactor test. See 85 FR 60607. The 

NPRM noted that most of these overlaps 

did not exist in the Supreme Court’s 

original articulation of the economic 

reality factors in Silk and were instead 

introduced by subsequent court of 

appeals decisions. The NPRM then 

explained several ways in which 

extensive overlaps may lead to 

inefficiency and confusion for the 

regulated community. 

First, the ‘‘skill required’’ factor 

articulated in Silk, 331 U.S. at 716, has 

been expanded by the Department and 

some courts to analyze ‘‘skill and 

initiative.’’ See, e.g., Superior Care, 840 

F.2d at 1060; WHD Fact Sheet WHD 

#13. Because the capacity for on-the-job 

initiative is already part of the control 

factor, the NPRM explained that this 

approach essentially imports control 

analysis into the skill factor. Indeed, the 

presence of control appears to overrides 

the existence of skill,9 effectively 

transforming the skill factor into an 

extension of the control factor in some 

circuits, but not others.10 The ‘‘skill and 

initiative’’ factor also overlaps with the 

opportunity factor, which considers the 

impact of initiative on worker’s 

earnings, resulting in initiative being 

analyzed under three different factors. 

As an illustration of confusion resulting 

from this overlap, the NPRM 

highlighted a case in which a court 

found that workers exercised enough 

on-the-job initiative for the control and 

opportunity factors to point towards 

independent contractor status, but 

nonetheless found the ‘skill and 

initiative factor points towards 

employee status’ due to ‘the key missing 

ingredient . . . of initiative.’ ’’ 85 FR 

60607 (quoting Express Sixty-Minutes 

Delivery, 161 F.3d at 303). 

Next, the permanence factor originally 

concerned the continuity and duration 

of a working relationship but has since 

been expanded by some courts and the 

Department to also consider the 

exclusivity of that relationship. See 85 

FR 60608 (citing Parrish 917 F.3d at 

386–87; Keller, 781 F.3d at 807–09; 

Scantland, 721 F.3d at 1319; WHD 

Opinion Letter FLSA 2019–6 at 8). But 

exclusivity—the ability or inability for a 

worker to offer services to different 

companies—is already a part of the 

control factor. This overlap results in 

exclusivity being analyzed twice and 

causes the actual consideration of 

permanence being potentially subsumed 

by control. 

Third, the ‘‘integral part’’ factor is 

used by some courts to be merely a 

proxy of control. As one such court 

explained: ‘‘It is presumed that, with 

respect to vital or integral parts of the 

business, the employer will prefer to 

engage an employee rather than an 

independent contractor. This is so 

because the employer retains control 

over the employee and can compel 

attendan[ce] at work on a consistent 

basis.’’ Baker v. Dataphase, Inc., 781 F. 

Supp. 724, 735 (D. Utah 1992). But the 

control factor already directly analyzes 

whether a business can compel 

attendance on a consistent basis. It is 

unclear what additional value can be 

gained by indirectly analyzing that same 

consideration a second time under the 

‘‘integral part’’ factor.11

Finally, while Silk articulated the 

opportunity for profit and loss and 

investment as separate factors, it 

analyzed the two together in concluding 

that truck drivers in that case were 

independent contractors in part because 

they ‘‘invested in their own trucks and 

had ‘‘an opportunity for profit from 

sound management’’ of that investment. 

331 U.S. at 719. The Second Circuit 

recognized such clear overlap, noting 

that ‘‘[e]conomic investment, by 

definition, creates the opportunity for 

loss, [and] investors take such a risk 

with an eye to profit.’’ Saleem, 854 F.3d 

at 145 n.29. Nonetheless, most courts 

and Department have analyzed 

opportunity for profit and loss and 

investment as separate factors. When 

done right, separate analysis leads to 

redundancy. See, e.g., Mid-Atlantic 

Installation Servs., 16 F. App’x at 106– 

07. When done wrong, it leads to 

analysis of investment without regard 

for the worker’s profit or loss, such as 

by comparing the dollar value of a 

worker’s personal investments against 

the total investment of a large company 

that, for example, ‘‘maintain[s] 

corporate offices.’’ Hopkins 545 F.3d at 

344. The NPRM explained that such a 

comparison says nothing about whether 

the worker is in business for himself, as 

opposed to being economically 

dependent on that company for work, 

and is therefore not probative and 

potentially misleading. 85 FR 60608. 

The NRPM concluded that reducing the 

above-mentioned overlaps would make 

the economic reality test easier to 

understand and apply. 

The SWRCC contended that 

‘‘overlapping factors [have] never been 

the source of—and the DOL cannot 

point to—any credible criticism,’’ but 

did not question or even acknowledge 

the above criticism discussed at length 

in the NRPM. In contrast, commenters 

that are significantly impacted by the 

FLSA’s obligations generally agreed 

with the Department that overlapping 

factors have created confusion. For 

example, the Association of General 

Contractors stated that ‘‘[n]avigating and 

complying with the various overlapping 

and inconsistent standards are 

confusing and costly,’’ and WPI 

‘‘agree[d] with the Department that such 

overlap and blurring of factors is 

confusing and inefficient.’’ See also, 

e.g., Center for Workplace Compliance 

(CWC); NRF; U.S. Chamber of 

Commerce. 

A multifactor test is a useful 

framework for determining FLSA 

employment in part because it organizes 

the many facts that are part of economic 

reality into distinct categories, thus 

providing some structure to an 

otherwise roving inquiry. However, this 

benefit is lost if the lines between those 

factors blur. Under prior articulations of 

the test, considerations within the 

control factor—capacity for on-the-job 

initiative, exclusivity, and ability to 

compel attendance—have been 

imported into analysis of three other 

factors: Skill, permanence, and integral 


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12Ronald Coase, Nature of the Firm, 4 Economica 

386 (1937), https://onlinelibrary.wiley.com/doi/ 

epdf/10.1111/j.1468-0335.1937.tb00002.x. See also 

Nobel Prizes and Laureates, Oct., 15, 1991, https:// 

www.nobelprize.org/prizes/economic-sciences/ 

1991/press-release/ (explaining The Nature of the 

Firm’s contribution to economics literature as a 

central reason for Coase’s receipt of the 1991 Nobel 

Prize in Economics); Katz and A. Krueger, ‘‘The 

Rise and Nature of Alternative Work Arrangements 

in the United States, 1995–2015,’’ p. 25 (2018) 

(‘‘Coase’s (1937) classic explanation for the 

boundary of firms rested on the minimization of 

transaction costs within firm-employee 

relationships. Technological changes may be 

reducing the transaction costs associated with 

contracting out job tasks, however, and thus 

supporting the disintermediation of work.’’). 

13The Department notes that it is unlikely that 

job tenures of independent contractors have fallen 

by more than employees because average job tenure 

for employees have dropped by many years, which 

is greater than the total duration of a typical 

independent contractor relationship. See Julie 

Hotchkiss and Christopher Macpherson, Falling Job 

Tenure: It’s Not Just about Millennials, Federal 

Reserve Bank of Atlanta, June 8, 2015, https://

www.frbatlanta.org/blogs/macroblog/2015/06/08/ 

falling-job-tenure-its-not-just-aboutmillennials.aspx. (showing that median job tenure 

for individuals born in 1933 was ten years or longer 

while median job tenure for individuals born after 

1983 was three years or less). 

part. Indeed, those control-based 

considerations appear to be the most 

important aspect of the other factors, 

which obscures those factors’ distinctive 

probative values. Moreover, 

considerations under the opportunity 

factor—the ability to affect profits 

through initiative—have been imported 

into the skill factor. And the ability to 

earn profits through investment 

overlaps completely with the 

investment factor. The Department 

continues to believe these overlapping 

coverages contribute to confusion and 

should be reduced where practicable. 

D. The Shortcomings and 

Misconceptions That This Rulemaking 

Seeks To Remedy Are More Apparent in 

the Modern Economy 

The NPRM explained that certain 

technological and social changes have 

made shortcomings of the economic 

reality test more apparent in the modern 

economy. It highlighted the effects of 

three types of change. First, falling 

transaction costs in many industries 

makes it more cost effective for firms to 

hire independent contractors rather than 

employees to perform core functions.12

This in turn means analyzing the 

importance of the work through the 

‘‘integral part’’ factor, which the 

Supreme Court never endorsed, is more 

likely to result in misleading signals 

regarding an individual’s employment 

status. Second, the transition from a 

more industrial-based to a more 

knowledge-based economy reduces the 

probative value of the investment factor 

in certain industries because 

individuals can be in business for 

themselves in those industries with 

minimal physical capital. Third, shorter 

job tenures among employees dull the 

ability of the permanence factor to 

distinguish between employees and 

independence contractor. See 85 FR 

60608–09. 

Several commenters agreed with the 

Department’s assessments of modern 

trends. See, e.g., TechNet (‘‘Given 

falling transaction costs, companies are 

more willing to allocate certain pieces of 

their production, even integrated parts, 

to independent contractors.’’); Food 

Industry Association (‘‘societal changes 

have resulted in innovative work 

arrangements and changes in job tenure 

expectation’’). Former Deputy Under 

Secretary of Labor and retired law 

professor Henry H. Perritt, Jr. found the 

discussion of modern trends to be 

‘‘particularly insightful and should be 

retained and expanded in the preamble 

to any final rule.’’ Other commenters 

disagreed. The AFL–CIO, for instance, 

theorized that lower transaction costs 

‘‘might just as easily result in employers 

not taking steps to retain employees 

who perform work central to their 

business, but instead tolerate frequent 

turnover in such positions’’ and that the 

‘‘job tenure of independent contractors 

may have fallen more’’ than for 

employees—though it did not provide 

evidence in support of its hypotheses.13

The Department continues to believe 

that each of the above shortcomings of 

the previously applied economic reality 

test provides sufficient reason for this 

rulemaking and that technological and 

societal changes have made these 

shortcomings even more apparent. 

E. Effects of Additional Regulatory 

Clarity on Innovation 

The NPRM expressed concern that the 

legal uncertainty arising from the abovedescribed shortcomings of the 

multifactor economic reality test may 

deter innovative, flexible work 

arrangements that benefit businesses 

and workers alike. Some commenters 

questioned this assumption. The 

Coalition of State Attorneys General, 

Cities, and Municipal Agencies (State 

AGs), for instance, contended that the 

Department ‘‘provides no empirical 

evidence or data demonstrating that 

employers now hesitate to engage in 

innovative arrangements’’ and further 

argued that because ‘‘digital platforms 

have become part of the modern 

economy . . . they have not been stifled 

by the current test.’’ But the mere 

existence of certain types of businesses 

is insufficient evidence that other such 

businesses are not being stifled, and it 

is unclear what empirical data could 

measure innovation that is not occurring 

due to legal uncertainty. Commenters 

who represent technology companies 

stated that legal uncertainty regarding 

worker classification in fact deters them 

from developing innovative and flexible 

work arrangements. See, e.g., CWI; 

TechNet. In addition, economists who 

study the impact of labor regulation on 

entrepreneurship also commented that 

clear independent contractor regulations 

would assist startup companies. Dr. Liya 

Palagashvilli (‘‘71 percent of startups 

relied on independent contractors and 

thought it was necessary to use contract 

labor during their early stages’’); Dr. 

Michael Farren and Trace Mitchell 

(‘‘[G]reater legal clarity to employers 

and workers will allow for more 

efficient production processes and will 

reduce the resources wasted on 

determining a worker’s employment 

classification through the legal 

process.’’). 

For the reasons mentioned above, the 

Department continues to believe that, 

unless revised, the multifactor economic 

reality test suffers because the analytical 

lens through which all the factors are 

filtered remains inconsistent; there is no 

clear principle regarding how to balance 

the multiple factors; the lines between 

many of the factors are blurred; and 

these shortcomings have become more 

apparent in the modern economy. The 

resulting legal uncertainty obscures 

workers’ and businesses’ respective 

rights and obligations under the FLSA 

and deters innovative work 

arrangements, thus inhibiting the 

development of new job opportunities 

or eliminating existing jobs. The 

Department is therefore issuing this 

final rule to increase legal certainty. 

IV. Final Regulatory Provisions 

Having reviewed commenter feedback 

submitted in response to the proposed 

rule, the Department is finalizing the 

addition of a new part 795 to Title 29 

of the Code of Federal Regulations, 

which will address whether particular 

workers are ‘‘employees’’ or 

independent contractors under the 

FLSA. In relevant part, and as discussed 

in greater detail below, the part 

includes: 

• An introductory provision at 

§ 795.100 explaining the purpose and 

legal authority for the new part; 

• a provision at § 795.105(a) 

explaining that independent contractors 

are not employees under the FLSA; 

• a provision at § 795.105(b) 

discussing the ‘‘economic reality’’ test 

for distinguishing FLSA employees from 

independent contractors and clarifying 

that the concept of economic 


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14See 29 U.S.C. 204, 211(a), 212(b), 216(c), 217; 

see also Fernandez v. Zoni Language Centers, Inc., 

858 F.3d 45, 48–49 (2d Cir. 2017) (noting that ‘‘[t]he 

DOL . . . administers the FLSA’’). 

15Additionally and as explained in greater detail 

below, this rule does not narrow the longstanding 

standard for distinguishing between FLSA 

employees and independent contractors; employees 

are economically dependent on another for work, 

and independent contractors are in business for 

themselves as matter of economic reality. 

dependence turns on whether a worker 

is in business for him- or herself 

(independent contractor) or is 

economically dependent on a potential 

employer for work (employee); 

• provisions at § 795.105(c) and (d) 

describing factors examined as part of 

the economic reality test, including two 

‘‘core’’ factors—the nature and degree of 

the worker’s control over the work and 

the worker’s opportunity for profit or 

loss—which typically carry greater 

weight in the analysis, as well as three 

other factors that may serve as 

additional guideposts in the analysis; 

• a provision at § 795.110 advising 

that the parties’ actual practice is more 

probative than what may be 

contractually or theoretically possible; 

• fact-specific examples at § 795.115; 

and 

• a severability provision at 

§ 795.120. 

The Department responds to 

commenter feedback on the proposed 

rule below. 

A. The Purpose of Part 795 

Proposed § 795.100 explained that the 

interpretations in part 795 will guide 

WHD’s enforcement of the FLSA and are 

intended to be used by employers, 

businesses, the public sector, 

employees, workers, and courts to 

assess employment status classifications 

under the Act. See 85 FR 60638. 

Proposed § 795.100 further clarified 

that, if proposed part 795 is adopted, 

employers may safely rely upon the 

interpretations in part 795 under section 

10 of the Portal-to-Portal Act, unless and 

until any such interpretation ‘‘is 

modified or rescinded or is determined 

by judicial authority to be invalid or of 

no legal effect.’’ Id. (quoting 29 U.S.C. 

259). 

Few commenters specifically 

addressed proposed § 795.100, but 

several discussed issues relevant to its 

content. For example, a few commenters 

questioned the Department’s legal 

authority to promulgate any regulation 

addressing independent contractor 

status under the FLSA. See Northern 

California Carpenters Regional Council 

(‘‘At no time since the FLSA was passed 

has Congress made substantive 

amendments to the definitions of 

employee, employer, or the ‘suffer or 

permit to work’ standard . . . nor has it 

directed any changes in the controlling 

regulations.’’); Rep. Bobby Scott et al. 

(‘‘Congress has not delegated 

rulemaking authority to the DOL with 

respect to the scope of the employment 

relationship under the FLSA.’’). A few 

commenters requested that the 

Department explain its source of 

rulemaking authority and the level of 

deference it expects to receive from 

courts interpreting its proposed 

regulation. A diverse collection of 

commenters, including the American 

Trucking Association (ATA), the 

National Home Delivery Association 

(NHDA), the Northwest Workers Justice 

Project (NWJP), and Winebrake & 

Santillo, LLC, opined that the 

Department’s proposed regulation 

would be entitled to Skidmore 

deference from courts, though these 

commenters diverged on the proposed 

rule’s ‘‘power to persuade.’’ Skidmore v. 

Swift & Co., 323 US 134, 140 (1944). 

Finally, the AFL–CIO asserted that 

‘‘[t]he proposed rule is based on 

considerations that did not motivate 

Congress when it adopted the FLSA, 

that the Department of Labor is not 

authorized to consider in construing the 

terms of the FLSA, and that the 

Department has no expertise regarding,’’ 

thus placing the proposed rule ‘‘outside 

the ‘limits of the delegation’ from 

Congress to the Department contained 

in the Act.’’ (quoting Chevron, U.S.A., 

Inc. v. NRDC, Inc., 467 U.S. 837, 865 

(1984)). 

The Department appreciates 

commenter interest in these issues. The 

Department without question has 

relevant expertise in the area of what 

constitutes an employment relationship 

under the FLSA, given its responsibility 

for administering and enforcing the 

Act 14 and its decades of experience 

doing so. The Department’s authority to 

interpret the Act comes with its 

authority to administer and enforce the 

Act. See Herman v. Fabri-Centers of 

Am., Inc., 308 F.3d 580, 592–93 (6th Cir. 

2002) (noting that ‘‘[t]he Wage and Hour 

Division of the Department of Labor was 

created to administer the Act’’ while 

agreeing with the Department’s 

interpretation of one of the Act’s 

provisions); Dufrene v. Browning-Ferris, 

Inc., 207 F.3d 264, 267 (5th Cir. 2000) 

(‘‘By granting the Secretary of Labor the 

power to administer the FLSA, Congress 

implicitly granted him the power to 

interpret.’’); Condo v. Sysco Corp., 1 

F.3d 599, 603 (7th Cir. 1993) (same). 

The Department believes a clear 

explanation of the test for whether a 

worker is an employee under the FLSA 

or an independent contractor not 

entitled to the protections of the Act in 

easily accessible regulatory text is 

valuable to potential employers, to 

workers, and to other stakeholders. It 

has a long history of offering 

interpretations in this area and believes 

this rulemaking has great value 

regardless of what deference courts 

ultimately give to it. 

While proposed § 795.100 

emphasized that part 795 would state 

the Department’s interpretation of 

independent contractor status under the 

FLSA, some commenters expressed 

concern that it would affect the scope of 

employment under other Federal laws. 

The United Food and Commercial 

Workers International Union (UFCW) 

believed that the proposal may narrow 

the coverage of the ‘‘Title VII of the Civil 

Rights Act of 1964, Americans with 

Disabilities Act, Age Discrimination in 

Employment Act (ADEA), and the Equal 

Pay Act.’’ See also National Women’s 

Law Center (NWLC); CLASP. The 

Department reaffirms that the rule 

concerns the distinction between 

employees and independent contractors 

solely for the purposes of the FLSA, and 

as such, would not affect the scope of 

employment under other Federal 

laws.15

Many commenters requested that the 

Department promulgate a standard more 

broadly applicable across other state 

and Federal employment laws. See, e.g., 

American Society of Travel Advisors, 

Inc. (‘‘[The NPRM . . . represents 

something of a missed opportunity 

insofar as it fails to address the 

longstanding difficulty associated with 

the continued use of multiple tests at 

the Federal level to determine worker 

status.’’); Cambridge Investment 

Research, Inc. (‘‘[W]ithout a more 

encompassing Department position or 

guidance addressing different state 

standards, some of the current 

uncertainty and unpredictability 

remain.’’); Chun Fung Kevin Chiu 

(‘‘[I]nconsistent Federal and state 

standards with regards to classification 

may render the DOL rules ineffective in 

practice for those independent 

contractors and businesses affected.’’). 

While several commenters 

acknowledged the Department’s lack of 

authority to interpret the scope of laws 

outside of its jurisdiction, the National 

Association of Manufacturers and the 

Mechanical Contractors Association of 

America (MCAA) urged the Department 

to collaborate with other Federal 

agencies to harmonize the varying 

employment definitions under Federal 

law. Finally, the Zobrist Law Group 

‘‘urge[d] the Department to prohibit 

states from using classification tests that 


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16See, e.g., Pharm. Research & Mfrs. of Am. v. 

FTC, 790 F.3d 198, 203 (D.C. Cir. 2015) (affirming 

that agency had discretion to ‘‘proceeding 

incrementally’’ in promulgating rules that were 

directed to one industry but no others); Inv. Co. 

Inst. v. Commodity Futures Trading Comm’n, 720 

F.3d 370, 378 (D.C. 2013) (observing that ‘‘[n]othing 

prohibits Federal agencies from moving in an 

incremental manner’’ (quoting FCC v. Fox 

Television Stations, Inc., 556 U.S. 502, 522 (2009)); 

City of Las Vegas v. Lujan, 891 F.2d 927,935 (D.C. 

Cir. 1989) (noting that ‘‘agencies have great 

discretion to treat a problem partially’’). 

17Similar to the MSPA regulation at 29 CFR 

500.20(h)(4), a regulation promulgated by the 

Department’s Veterans’ Employment & Training 

Service (VETS) at 20 CFR 1002.44 articulates a sixfactor balancing test based on the tests used by 

courts under the FLSA for determining whether an 

individual is an employee or an independent 

contractor under the Uniformed Services 

Employment and Reemployment Rights Act 

(USERRA). See 70 FR 75254 (‘‘The independent 

contractor provision in this rule is based on 

Congress’s intent that USERRA’s definition of 

‘employee’ be interpreted in the same expansive 

manner as the term is defined under the [FSLA].’’ 

(citing H.R. Rep. No. 103–65, Pt. I, at 29 (1993); S. 

Rep. No. 103–58, at 40 (1993))). Consistent with this 

rulemaking’s incremental focus of the FLSA 

context, the Department declines to amend 20 CFR 

1002.44 at this time. 

conflict with the proposed rule,’’ 

asserting that ‘‘state law not preempted 

by the FLSA is narrow’’ and that state 

laws ‘‘shifting an independent 

contractor under the FLSA to an 

employee under state law . . . [impose] 

greater obligations upon those workers.’’ 

But see Truckload Carriers Association 

(‘‘TCA understands that, due to our 

nation’s federalist system, individual 

states such as California can pursue 

misguided statues that are more 

stringent than the Federal standard the 

Department is seeking to clarify[.]’’). 

While the Department appreciates the 

desire to achieve uniformity across the 

various state and Federal laws which 

may govern work arrangements, 

requests to modify definitions and tests 

under different laws are outside the 

scope of this rulemaking. 

Some commenters supportive of the 

proposed rule requested that the 

Department make conforming edits to 

its MSPA regulation at 29 CFR 

500.20(h)(4), addressing whether or not 

a farm labor contractor engaged by an 

agricultural employer/association is an 

independent contractor or an employee 

under MSPA. See Americans for 

Prosperity Foundation (AFPF) (‘‘To 

further the Department’s goal of 

clarification, simplification, and 

consistency . . . the same criteria used 

in the NPRM to define independent 

contractors for purposes of the FLSA 

also should apply to the MSPA, and to 

any other provision that references the 

FLSA.’’); Administrative Law Clinic at 

the Antonin Scalia Law School (‘‘[T]he 

Department should simply use its 

proposed regulations in 29 CFR 795.100, 

et seq., to determine employee status 

under MSPA, and repeal [29 CFR 

500.20(h)] as duplicative.’’). Relatedly, 

Texas RioGrande Legal Aid (TRLA), 

which expressed opposition to the 

proposed rule, asserted that ‘‘the 

proposed rule will lead to considerable 

confusion among both employers and 

workers . . . because the proposed rule 

at odds with the Department’s [MSPA] 

regulations,’’ but opined that any effort 

to revise 29 CFR 500.20(h) ‘‘would be in 

direct contravention of Congressional 

directives regarding the interpretation of 

the MSPA.’’ 

As noted in the NPRM preamble, the 

Department acknowledges that MSPA 

adopts by reference the FLSA’s 

definition of ‘‘employ,’’ see 18 U.S.C. 

1802(5), and that 29 CFR 500.20(h)(4) 

considers ‘‘whether or not an 

independent contractor or employment 

relationship exists under the Fair Labor 

Standards Act’’ to interpret independent 

contractor status under MSPA. At this 

time, however, the Department does not 

see a compelling need to revise 29 CFR 

500.20(h)(4), as we are unsure whether 

application of the six factor economic 

reality test described in that regulation 

has resulted in confusion and 

uncertainty in the more limited MSPA 

context similar to that described in the 

FLSA context. Importantly, the 

regulatory standard for determining an 

individual’s classification status under 

MSPA is generally consistent with the 

FLSA guidance finalized in this rule: 

‘‘In determining if the farm labor 

contractor or worker is an employee or 

an independent contractor, the ultimate 

question is the economic reality of the 

relationship—whether there is 

economic dependence upon the 

agricultural employer/association or 

farm labor contractor, as appropriate.’’ 

29 CFR 500.20(h)(4). Therefore, as 

explained in the NPRM, the Department 

prefers to proceed incrementally at this 

time by leaving the MSPA regulation at 

29 CFR 500.20(h)(4) unchanged.16 17

The American Network of Community 

Options and Resources (ANCOR) 

expressed concern about the 

Department’s statement in proposed 

§ 795.100 that, if finalized, the proposed 

rule ‘‘would contain the Department’s 

sole and authoritative interpretation of 

independent contractor status under the 

FLSA,’’ fearing that the statement could 

be interpreted to ‘‘render obsolete the 

Department’s specific guidance on the 

application of the FLSA to shared living 

in Fact Sheet #79G and Administrator’s 

Interpretation No. 2014–1.’’ The 

Department disagrees with this 

interpretation, noting that § 795.100 

only rescinds earlier WHD guidance 

addressing independent contractor 

status under the FLSA ‘‘[t]o the extent 

. . . [that such guidance is] inconsistent 

or in conflict with the interpretations 

stated in this part.’’ As explained in the 

NPRM, the Department engaged in this 

rulemaking to ‘‘clarify the existing 

standard, not radically transform it,’’ 85 

FR 60636, and none of the industryspecific guidance in Administrator’s 

Interpretation No. 2014–1 is 

meaningfully affected by this final rule. 

For similar reasons, we believe that the 

assertion by the Nebraska Appleseed 

Center for Law in the Public Interest 

(Appleseed Center) that this rulemaking 

will ‘‘rescind years of [Departmental] 

guidance’’ is an overstatement. This rule 

is premised on familiar FLSA concepts 

that courts, employers, workers, and the 

Department have applied for years 

while providing updated and clearer 

explanations of what the concepts mean 

and how they are considered. Although 

this rule will change the Department’s 

analysis for classifying workers as 

employees or independent contractors 

in some respect, those changes do not 

favor independent contractor 

classification (i.e., the ultimate legal 

outcome) relative to the status quo, but 

rather offer greater clarity as to workers’ 

proper classifications. 

B. Clarification That Independent 

Contractors Are Not Employees Under 

the Act 

Proposed § 795.105(a) explained that 

an independent contractor who renders 

services to a person is not an employee 

of that person under the FLSA, and that 

the Act’s wage and hour requirements 

do not apply with respect to a person’s 

independent contractors. See 85 FR 

60638–39. Proposed 795.105(a) 

similarly explained that the 

recordkeeping obligations for employers 

under section 11 of the Act do not apply 

to a person with respect to services 

received from an independent 

contractor. Id. 

The vast majority of substantive 

comments agreed with proposed 

§ 795.105(a). One anonymous 

commenter suggested that the 

Department interpret the FLSA’s 

minimum wage and overtime pay 

requirements to apply to independent 

contractors because the Act’s 

‘‘declaration of policy’’ at 29 U.S.C. 202 

‘‘suggests the purpose of the FLSA is to 

protect workers.’’ The Department does 

not adopt this interpretation because 

Federal courts of appeals have 

uniformly held, and the Department has 

consistently maintained, that ‘‘FLSA 

wage and hour requirements do not 

apply to true independent contractors.’’ 

Karlson, 860 F.3d at 1092; see also, e.g., 

Parrish, 917 F.3d at 384; Saleem, 854 


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18The Department’s prior guidance has stated 

that ‘‘an employee, as distinguished from a person 

who is engaged in a business of his or her own, is 

one who, as a matter of economic reality, follows 

the usual path of an employee.’’ Fact Sheet #13; see 

also WHD Opinion Letter FLSA–795 (Sept. 30, 

1964). Upon consideration, however, the 

Department believes that describing an employee as 

someone who ‘‘follows the usual path of an 

employee’’ is circular and unhelpful. 

19 It is possible for a worker to be an employee 

in one line of business and an independent 

contractor in another. 

F.3d at 139–40; Express Sixty-Minutes 

Delivery, 161 F.3d at 305; see also 

Portland Terminal, 330 U.S. at 152 

(holding that the FLSA ‘‘was obviously 

not intended to stamp all persons as 

employees’’). 

C. Adopting the Economic Reality Test 

To Determine a Worker’s Employee or 

Independent Contractor Status Under 

the Act 

Proposed § 795.105(b) would adopt 

the economic reality test to determine a 

worker’s status as an employee or an 

independent contractor under the Act. 

As the proposal explained, the inquiry 

of whether an individual is an employee 

or independent contractor under the Act 

is whether, as a matter of economic 

reality, the individual is economically 

dependent on the potential employer for 

work. See 85 FR 60611; see also Pilgrim 

Equip., 527 F.2d at 1311 (‘‘It is 

dependence that indicates employee 

status.’’). The proposal and this final 

rule provide further clarity as to the 

economic reality test’s touchstone— 

economic dependence. 

The NPRM preamble explained that 

clarifying the test requires putting the 

question of economic dependence in the 

proper context. ‘‘Economic dependence 

is not conditioned reliance on an 

alleged employer for one’s primary 

source of income, for the necessities of 

life.’’ Mr. W Fireworks, 814 F.2d at 1054. 

Rather, courts have framed the question 

as ‘‘ ‘whether, as a matter of economic 

reality, the workers depend upon 

someone else’s business for the 

opportunity to render service or are in 

business for themselves.’ ’’ Saleem, 854 

F.3d at 139 (quoting Superior Care, 840 

F.2d at 1059). This conception of 

economic dependence comports with 

the FLSA’s definition of employ as 

‘‘includ[ing] to suffer or permit to 

work.’’ See 29 U.S.C. 203(g). An 

individual who depends on a potential 

employer for work is able to work only 

by the sufferance or permission of the 

potential employer. Such an individual 

is therefore an employee under the Act. 

In contrast, an independent contractor 

does not work at the sufferance or 

permission of others because, as a 

matter of economic reality, he or she is 

in business for him- or herself. In other 

words, an independent contractor is an 

entrepreneur who works for him- or 

herself, as opposed to for an employer.18

The Department did not receive any 

substantive comments disputing this 

distinction between employee and 

independent contractor classification 

under the Act. 

The Department observed in the 

NPRM preamble that some courts have 

relied on a worker’s entrepreneurship 

with respect to one type of work to 

conclude that the worker was also in 

business for him- or herself in a second, 

unrelated type of work. See, e.g., 

Parrish, 917 F.3d at 384 (considering 

‘‘plaintiff’s enterprise, such as the goat 

farm, as part of the overall analysis of 

how dependent plaintiffs were on 

[defendant]’’ for working as 

consultants); Thibault, 612 F.3d at 849 

(concluding that plaintiff was an 

independent contractor as a cable 

splicer in part because he managed 

unrelated commercial operations and 

properties in a different state). This 

approach is inconsistent with the 

Supreme Court’s instruction that the 

economic reality analysis be limited to 

‘‘the claimed independent operation.’’ 

Silk, 331 U.S. at 716. Thus, the relevant 

question in this context is whether the 

worker providing certain service to a 

potential employer is an entrepreneur 

‘‘in that line of business.’’ Mr. W 

Fireworks, 814 F.2d at 1054. Otherwise, 

businesses must make worker 

classification decisions based on facts 

outside the working relationship.19

At bottom, the phrase ‘‘economic 

dependence’’ may mean many different 

things. But in the context of the 

economic reality test, ‘‘economic 

dependence’’ is best understood in 

terms of what it is not. The phrase 

excludes individuals who, as a matter of 

economic reality, are in business for 

themselves. Such individuals work for 

themselves rather than at the sufferance 

or permission of a potential employer, 

see 29 U.S.C. 203(g), and thus are not 

dependent on that potential employer 

for work. Section 795.105(b) therefore 

recognizes the principle that, as a matter 

of economic reality, workers who are in 

business for themselves with respect to 

work being performed are independent 

contractors for that work. 

Many commenters supported the 

Department’s decision to implement the 

economic reality test applying the 

above-described approach to economic 

dependence. WPI applauded the 

‘‘decision to retain the long-standing 

economic reality test while sharpening 

the factors used to apply that test.’’ The 

NRF stated that the economic reality test 

‘‘is the proper basis for distinguishing 

independent contractors from 

employees under the FLSA as 

articulated by the U.S. Supreme Court.’’ 

ATA) found that the economic 

dependence framework ‘‘comports with 

a thoughtful reading of decades of court 

precedent.’’ See also Americans for 

Prosperity Foundation; Cetera Financial 

Group; Center for Workplace 

Compliance (‘‘DOL is correct to propose 

using the economic dependence 

standard for determining whether an 

individual is an employee or 

independent contractor’’). 

The majority of commenters agreed 

with the Department’s proposal to adopt 

the economic reality test using the 

above-mentioned definition of economic 

dependence, including commenters that 

were generally critical of the proposed 

rule. For example, the State AGs 

approvingly stated that ‘‘[f]or nearly 

three-quarters of a century, the Supreme 

Court has held that whether a worker is 

a covered ‘‘employee’’ under the FLSA 

is governed by the economic reality 

test.’’ See also National Employment 

Law Project (NELP); Signatory Wall and 

Ceiling Contractors Alliance (SWACCA) 

(recommending adopting an economic 

reality test with a different number of 

factors). While objecting commenters 

challenged various aspects of the 

proposed rule, they did not dispute the 

sharpened explanation of the economic 

dependence inquiry. Commenters, both 

supportive and objecting, made a 

number of thoughtful suggestions, 

which are addressed below. 

The Administrative Law Clinic at the 

Antonin Scalia Law School suggested 

further clarifying the test by adding 

‘‘[a]n individual is not an ‘employee’ 

merely because he or she is 

economically dependent in some way 

on the potential employer.’’ Such 

additional language may be redundant 

in § 795.105(b) because that section 

already articulates economic 

dependence as dependence on a 

potential employer for work, as opposed 

to being in business for oneself. As 

explained above, other forms of 

dependence, such as dependence on 

income or subsistence, do not count. 

However, given how important it is to 

apply the correct concept of economic 

dependence, the Department believes 

this point bears emphasis through a 

concrete, fact-specific example in the 

regulatory text. The Department is thus 

adding an example in § 795.115 to 

demonstrate that a different form of 

dependence, i.e., dependence of income 

or subsistence, is not a relevant 

consideration in the economic reality 

test. 


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20Consistent with WHD Opinion Letter 

FLSA2019–6, the Department’s proposal did not 

include the ‘‘independent business organization’’ 

factor mentioned in Fact Sheet #13. The opinion 

letter explained that the ‘‘independent business 

organization’’ factor was ‘‘[e]ncompassed within’’ 

the other factors. Because the ultimate inquiry of 

the economic dependence test is whether workers 

are ‘‘in business for themselves,’’ Saleem, 854 F.3d 

at 139, analyzing the worker’s degree of 

‘‘independent business organization’’ restates the 

inquiry and adds little, if anything, to the analysis 

that is not already covered by the other factors. 

A number of individual commenters 

who generally support this rule 

requested that the Department allow 

workers who voluntarily agree to be 

independent contractors to be classified 

as such, regardless of other facts. For 

example, Farren and Mitchell urged the 

Department to ‘‘allow the parties 

themselves to explicitly define the 

nature of their labor relationship,’’ 

asserting that such an approach would 

respect worker autonomy, maximize 

legal certainty, and promote greater 

flexibility in work arrangements. This 

requested approach would allow 

voluntary agreements to supersede the 

economic reality test in determining 

classification as an employee or 

independent contractor. The Supreme 

Court, however, held in Tony & Susan 

Alamo, 471 U.S. at 302, that the FLSA 

must be ‘‘applied even to those who 

would decline its protections.’’ In other 

words, an individual may not waive 

application of the Act through voluntary 

agreement. See Barrentine v. ArkansasBest Freight Sys., Inc., 450 U.S. 728, 740 

(1981) (‘‘FLSA rights cannot be abridged 

by contract or otherwise waived, 

because this would ‘nullify the 

purposes’ of the statute and thwart the 

legislative policies it was designed to 

effectuate.’’) (quoting Brooklyn Savings 

Bank v. O’Neil, 324 U.S. 697, 707 

(1945)); Lauritzen, 835 F.2d at 1544–45 

(‘‘The FLSA is designed to defeat rather 

than implement contractual 

arrangements. If employees voluntarily 

contract to accept $2.00 per hour, the 

agreement is ineffectual.’’) (Easterbrook 

J., concurring). Because this request 

would contradict this precedent by 

allowing the possibility of workers who 

are employees under the facts and law 

to waive the FLSA’s protections by 

classifying themselves as independent 

contractors, the Department declines to 

implement it in the final rule. 

Some commenters, including the 

Minnesota State Building & 

Construction Trades Council, PJC, and 

SWRCC, suggested that the rule include 

a presumption of employee status. The 

Supreme Court has said and the 

Department agrees that this is a totality 

of the circumstances analysis, based on 

the facts. The Department thus declines 

to create a presumption in favor of 

employee status. 

NELA, Farmworker Justice (FJ), and 

several other commenters requested that 

the Department abandon the economic 

reality test in favor of the ABC test 

adopted by the California Supreme 

Court in Dynamex Operations West v. 

Superior Court, 416 P.3d 1 (2018). By 

contrast, other commenters, such as the 

American Society of Travel Advisors 

(ASTA) and National Federation of 

Independent Business (NFIB), urged the 

Department to adopt the common law 

standard used to distinguish between 

employees and independent contractors 

under the Internal Revenue Code and 

other Federal laws. These requests are 

addressed in the discussion of 

regulatory alternatives in Section VI, 

which explains why the Department is 

not adopting either the common law 

control test or the ABC test for 

employment under the FLSA. 

For the reasons discussed above, the 

Department adopts § 795.105(b) as 

proposed to adopt the economic realty 

test to determine whether an individual 

is an employee or independent 

contractor under the FLSA. Under that 

test, an individual is an employee if he 

or she is dependent on an employer for 

work, and is an independent contractor 

if that he or she is, as a matter of 

economic reality, in business for him- or 

herself. 

D. Applying the Economic Reality 

Factors To Determine a Worker’s 

Independent Contractor or Employee 

Status 

Proposed § 795.105(c) explained that 

certain nonexclusive economic reality 

factors guide the determination of 

whether an individual is, on one hand, 

economically dependent on a potential 

employer for work and therefore an 

employee or, on the other hand, in 

business for him- or herself and 

therefore an independent contractor. 

See 85 FR 60639. These factors were 

listed in proposed § 795.105(d), based 

on the factors currently used by the 

Department and most Federal courts of 

appeals, with certain proposed 

reformulations. Id. 

First, the Department proposed to 

follow the Second Circuit’s approach of 

analyzing the worker’s investment as 

part of the opportunity factor. The 

combined factor asked whether the 

worker has an opportunity to earn 

profits or incur losses based on his or 

her exercise of initiative or management 

of investments. See 85 FR 60613–15, 

60639. Second, the Department 

proposed to clarify that the ‘‘skill 

required’’ factor originally articulated by 

the Supreme Court should be used, as 

opposed to the ‘‘skill and initiative’’ 

factor currently used in some circuits, 

because considering initiative as part of 

the skill factor creates unnecessary and 

confusing overlaps with the control and 

opportunity factors. See 85 FR 60615, 

60639. Third, the Department proposed 

to further reduce overlap by analyzing 

the exclusivity of the relationship as a 

part of the control factor only, as 

opposed to both the control and 

permanence factors. See 85 FR 60615– 

16, 60639. Lastly, the Department 

proposed to reframe the ‘‘whether the 

service rendered is an integral part of 

the alleged employer’s business’’ factor 

in accordance with the Supreme Court’s 

original inquiry in Rutherford Food, 331 

U.S. at 729, of whether the work is ‘‘part 

of an integrated unit of production.’’ See 

85 FR 60616–18, 60639.20

Proposed § 795.105(c) further aimed 

to improve the certainty and 

predictability of the test by focusing it 

on two core factors: (1) The nature and 

degree of the worker’s control over the 

work; and (2) the worker’s opportunity 

for profit or loss. The proposed rule 

explained that if both proposed core 

factors point towards the same 

classification—whether employee or 

independent contractor—there is a 

substantial likelihood that that 

classification is appropriate. See 85 FR 

60618–20, 60639. 

The following discussion addresses 

commenter feedback on the five 

proposed economic reality factors. 

1. The ‘‘Nature and Degree of the 

Individual’s Control Over the Work’’ 

Factor 

The first core factor identified in the 

proposed regulatory text was the 

‘‘nature and degree of the individual’s 

control over the work.’’ 85 FR 60639. 

Proposed § 795.105(d)(1)(i) explained 

that this factor ‘‘weighs towards the 

individual being an independent 

contractor to the extent the individual, 

as opposed to the potential employer, 

exercises substantial control over key 

aspects of the performance of the work, 

such as by setting his or her own 

schedule, by selecting his or her 

projects, and/or through the ability to 

work for others, which might include 

the potential employer’s competitors.’’ 

Proposed § 795.105(d)(1)(i) further 

explained that, in contrast, this factor 

‘‘weighs in favor of the individual being 

an employee under the Act to the extent 

the potential employer, as opposed to 

the individual, exercises substantial 

control over key aspects of the 

performance of the work, such as by 

controlling the individual’s schedule or 

workload and/or by directly or 

indirectly requiring the individual to 


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21As Mr. Reibstein acknowledged, the proposed 

regulatory text beyond the title of the control 

section was written in a ‘‘neutral’’ manner. The 

final regulatory text is written in a similarly neutral 

manner. 

work exclusively for the potential 

employer.’’ In addition, the proposal 

stated that the following actions by the 

potential employer ‘‘do[ ] not 

constitute control that makes the 

individual more or less likely to be an 

employee under the Act’’: ‘‘[r]equiring 

the individual to comply with specific 

legal obligations, satisfy health and 

safety standards, carry insurance, meet 

contractually agreed-upon deadlines or 

quality control standards, or satisfy 

other similar terms that are typical of 

contractual relationships between 

businesses (as opposed to employment 

relationships).’’ Numerous commenters 

requested changes to the proposed 

control section regarding (1) the 

perspective from which control is 

framed; (2) the examples of control that 

are relevant to the economic 

dependence inquiry; and (3) examples 

of control that are not. 

a. Responses to Requests Regarding the 

Framing of Control 

Some commenters asserted that the 

control factor should focus on the 

potential employer’s substantial control 

over the worker instead of the worker’s 

substantial control over the work. For 

example, the State AGs said that the 

‘‘proposed control factor incorrectly 

focuses on the worker’s control over the 

work’’ and that ‘‘[w]ell-established 

precedent makes clear that the proper 

focus is the employer’s control over the 

worker.’’ According to NELA, ‘‘the 

control analysis has historically been, 

and should continue to be, on the 

control that the employer has over the 

employee, not that the employee has 

over their work.’’ NELA added that the 

Department ‘‘cannot deny that its 

proposal casts the control inquiry 

differently than the Supreme Court, 

courts of appeals, and the Department 

have in the past.’’ And the United 

Brotherhood of Carpenters and Joiners 

of America stated that the proposal’s 

‘‘focus on the individual’s control over 

the work turns the ‘suffer or permit’ 

standard on its head’’ because that 

standard ‘‘references the purported 

employer’s behavior—not the worker’s.’’ 

See also Northern California Carpenters 

Regional Council (noting that ‘‘[b]ecause 

the ‘nature and degree of the 

individual’s control over the work’ . . . 

focuses on the individual’s control, as 

opposed to the employer’s control, the 

factor skews towards most skilled 

tradespeople being classified as 

independent cont[r]actors’’). Relatedly, 

attorney Richard Reibstein suggested 

that the title of the control subsection 

‘‘be re-drafted in a manner that does not 

suggest it favors independent contractor 

status because the remaining text 

regarding [the control factor] is neutral.’’ 

Mr. Reibstein suggested that the title be 

changed from the ‘‘nature and degree of 

the individual’s control over the work’’ 

to the ‘‘nature and degree of each party’s 

control over the work.’’ Finally, WPI 

expected that some commenters would 

object to the Department’s proposed 

articulation of the control factor, and it 

supported the Department’s approach 

by saying that ‘‘the economic reality test 

focuses on the individual—whether the 

individual is economically dependent 

on another business or in business for 

him or herself,’’ and that, ‘‘[t]hus, the 

focus of each factor should also be on 

the economic realities of the individual, 

not the businesses with which [he or 

she] contracts.’’ See also CPIE 

(supporting ‘‘the NPRM’s articulation of 

this factor’’). 

Notwithstanding differing commenter 

preferences over the primary 

articulation of the control factor, the 

proposed (and final) regulatory text at 

§ 795.105(d)(1)(i) discusses both the 

individual worker’s control and the 

potential employer’s control.21 This 

approach is consistent with that of 

courts, which also generally consider 

both the individual’s control and the 

potential employer’s control. See, e.g., 

Razak, 951 F.3d at 142; Hobbs, 946 F.3d 

at 829; Saleem, 854 F.3d at 144–45; 

Karlson, 860 F.3d at 1096. The 

Department explained in the NPRM 

preamble that whether the control factor 

is articulated with reference to the 

individual worker’s control or the 

potential employer’s control is a 

‘‘distinction . . . of no consequence,’’ 

and that both ‘‘the nature and degree of 

control over the work by the worker and 

by the potential employer are 

considered to determine whether 

control indicates employee or 

independent contractor status.’’ 85 FR 

60612 n.34. The Department reaffirms 

that statement now and reiterates that 

both the worker’s control and the 

potential employer’s control should be 

considered. To remove any ambiguity 

on this point, the Department has 

modified the title of subsection 

795.105(d)(1)(i) to ‘‘[t]he nature and 

degree of control over the work,’’ 

removing the proposed rule’s reference 

to ‘‘the individual’s control over the 

work.’’ This revised articulation is 

closer to the Supreme Court’s 

description of the economic reality test’s 

control factor in Silk, 331 U.S. at 716 

(‘‘degrees of control’’), which does not 

indicate a focus on either the individual 

worker or the potential employer. 

Mr. Reibstein also suggested that the 

control factor ‘‘should be drafted in a 

manner that focuses attention on the key 

to control, which is control over the 

manner and means by which the work 

in question is performed.’’ He asserted 

that, as proposed, the control section ‘‘is 

ambiguous at best and may be 

misleading at worst,’’ and suggested that 

‘‘control over the work’’ should be 

changed to ‘‘control over the 

performance of the work, particularly 

how the work is to be performed.’’ The 

Department, however, prefers to retain 

the ‘‘control over the work’’ articulation. 

It is purposefully broad to encompass 

various different types of control that 

the individual worker and the potential 

employer may exercise over the working 

relationship. Moreover, the Department 

agrees that who controls the manner and 

means by which the work is performed 

is a key component of the control 

analysis, and the Department believes 

that both the proposed and final 

regulatory text reflect the importance of 

the manner and means by which the 

work is performed. 

b. Responses to Comments Regarding 

Examples of Relevant Control 

A number of comments addressed the 

proposed regulatory text’s three nonexhaustive examples of control that may 

indicate employee or independent 

contractor status, which were setting 

schedules, selecting projects, and 

working exclusively for the employer or 

working for others. 

Several commenters sought 

clarification that these examples may 

not always be probative of an 

employment or independent contracting 

relationship. For instance, NRF stated 

‘‘there may be limits on schedules that 

are consistent with business 

relationships that should not be treated 

as impacting the analysis,’’ such as 

delivery workers who can deliver only 

during the restaurant’s operating hours 

and a retailer that arranges for afterhours cleaning services. The 

Department agrees that there are 

examples of impacts on a workers 

schedule that are not probative of the 

type of control that indicates economic 

dependence and that NRF has identified 

two such examples by pointing to the 

fact that a delivery worker can deliver 

for a restaurant only when the 

restaurant is open and a cleaning worker 

can clean a retailer only when it is 

closed. But the Department does not 

think any change to the regulatory text 

is warranted to clarify this point, as the 

regulatory text merely provides a few 

examples of facets of control that may— 


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22The Department received related feedback from 

commenters asking for proposed § 795.110 to 

discount the relevance of voluntary worker 

practices (e.g., choosing to work exclusively for one 

business, declining to negotiate prices, etc.); as 

explained in greater detail in Section IV(F), coercive 

behavior by a potential employer (e.g., vigilant 

enforcement of a non-compete clause, punishing 

workers for turning down available work, etc.) 

constitutes stronger evidence of employment status 

than such voluntary worker practices, but is not a 

prerequisite for such worker practices to have 

import under the FLSA’s economic reality test. 

or may not—be probative in any given 

case depending on the facts. NHDA 

sought clarification of the working for 

others example because, in its view, ‘‘it 

is not enough for the individual to claim 

he/she never turned down projects or 

never worked for others. Rather, the 

individual must demonstrate some 

action, implementation, or execution (in 

other words, act or conduct) by the 

potential employer that prevented the 

individual from turning down projects 

or working for others.’’ In response, the 

Department notes its statement in the 

NPRM preamble that ‘‘a potential 

employer may exercise substantial 

control, for example, where it explicitly 

requires an exclusive working 

relationship or where it imposes 

restrictions that effectively prevent an 

individual from working with others.’’ 

85 FR 60613 (citing cases where the 

employer’s schedule made it 

‘‘impossible’’ or ‘‘practically 

impossible’’ for the worker to work for 

others). Where a worker could work for 

others, meaning the potential employer 

is not explicitly or effectively 

preventing the worker from doing so, 

the worker retains control over this 

aspect of his or her work. That he or she 

exercises this control by choosing to 

work only for one potential employer 

does not necessarily shift the control to 

the potential employer. Further, the 

parties’ actions, including whether the 

potential employer enforced an explicit 

bar on working for others or has 

imposed working conditions that make 

doing so impracticable, are stronger 

evidence of control than contractual or 

theoretical ability or inability to control 

this aspect of the working 

relationship.22

Some commenters interpreted the few 

examples of control in the proposal as 

an effort to limit the types of control 

that may be considered. For example, 

Farmworker Justice stated that the 

proposal ‘‘improperly and erroneously 

tries to narrow the relevant 

considerations for the [control] factor.’’ 

According to Edward Tuddenham, the 

proposal ‘‘lists some ‘key’ elements of 

control that . . . may have little or no 

significance whatsoever’’ and ‘‘[s]uch a 

rigid approach to the question of control 

can only wreak havoc with the 

established common law of FLSA 

employer/employee relationships.’’ 

However, the examples of types of 

control identified in the proposal were 

not an attempt to narrow or limit the 

control factor analysis. The Department 

cannot provide an exhaustive list of 

types of control and so instead focused 

on several key examples of types of 

control. Any type of control over the 

work by the individual worker or the 

potential employer may be considered. 

Such considerations should not be 

‘‘mechanical,’’ Saleem, 854 F.3d at 140, 

and instead must focus on whether the 

control exercised by either the 

individual or the potential employer 

answers the ultimate inquiry of 

‘‘whether the individual is, as a matter 

of economic reality, in business for 

himself,’’ as opposed to being 

economically dependent on the 

potential employer for work. In any 

event, as explained below, the 

Department is clarifying types of control 

that may be relevant to the analysis. 

Numerous other commenters 

suggested the addition of dozens of 

examples of types of control that 

indicate employee or independent 

contractor status. For example, WPI 

suggested that the following types of 

control by the individual worker are 

indicative of independent contractor 

status: Controlling whether to work at 

all; controlling the location of where to 

perform the work; controlling how the 

work is performed; setting prices or 

choosing between work opportunities 

based on prices; and hiring employees 

or engaging subcontractors. It suggested, 

conversely, that the following types of 

control by the potential employer are 

indicative of employee status: Requiring 

the individual worker to comply with 

company specific procedures regarding 

how the work is performed; requiring a 

set schedule or minimum hours; 

controlling when the individual can 

take meal and rest breaks; and 

controlling when the individual can 

take time off. CWI recommended 

addition of the following as examples of 

the individual worker’s control over the 

work that are indicative of independent 

contractor status: The worker’s ability to 

make decisions with respect to the 

details of how the work is performed, 

including the staging and sequencing of 

aspects of the work; the worker’s 

selection of supplies, tools, or 

equipment to be used (or not used) by 

the worker; the worker’s control over 

when the work is conducted (e.g., 

worker flexibility in start and end times) 

where flexibility exists in the result to 

be accomplished or the time periods 

available to a worker to offer their 

services; the worker’s control over 

where certain aspects of the services can 

be performed where the subparts do not 

change the results provided by the 

worker; and the worker’s discretion to 

use the services of others to perform the 

work in whole or in part, or to support 

the worker’s performance of services 

(including performing some of the 

contracted work and/or performing 

supporting services such as accounting, 

legal, administrative, or financial 

services to support the worker or 

services to support equipment or tools 

used by the worker to perform services). 

UPS stated that the proposal ‘‘fails to 

provide examples beyond controlling 

the worker’s schedule or workload and 

restricting the worker’s ability to work 

with other entities,’’ and that ‘‘courts 

have properly widened the lens when 

assessing control, looking at factors such 

as background checks, authority to hire 

and fire, training, advertising, licensing, 

uniforms, monitoring, supervision, 

evaluation, and discipline.’’ 

Farmworker Justice commented that the 

proposal did ‘‘not acknowledge other 

examples of employer control that 

unquestionably shape a worker’s 

experience and performance of daily 

tasks’’ and provided as examples 

‘‘[r]equirements about how a worker 

must dress, what language or tone she 

may use in a professional setting, or 

what prices she must charge 

customers.’’ Likewise, Sen. Sherrod 

Brown and 22 other senators 

commented that the proposal ‘‘ignore[s] 

other critical matters of control that an 

employer typically exercises or retains 

the right to, including setting the rate of 

pay and the manner in which the work 

must be performed and disciplining 

workers who do not meet their 

standards.’’ And Human Rights Watch 

commented that the proposed control 

factor ‘‘potentially omits other ways that 

gig companies control their workers, 

such as the ways in which they 

unilaterally change the formula for 

calculating base earnings, the setting of 

default tip options, and restrictions on 

the range of assignments that are offered 

to workers at a specific time or in a 

specific locale.’’ Other commenters 

provided various industry-specific 

examples that they viewed as indicative 

of control by the individual worker or 

the potential employer. 

The Department has considered the 

various comments regarding additional 

examples of types of control that can be 

indicative of employee or independent 

contractor status and declines to make 

changes to the proposed regulatory text 

in response. While this preamble and 


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23See 85 FR 60612 n.35 (citing Parrish, 917 F.3d 

at 382; Express Sixty-Minutes Delivery, 161 F.3d at 

303). 

24See id. (citing Thibault, 612 F.3d at 847). 

25See 85 FR 60612–13 (citing Mid-Atl. 

Installation, 16 F. App’x at 106). 

the regulatory test cannot (and should 

not) address each and every potential 

scenario and example, they clarify and 

articulate principles related to the 

control factor that can be applied to an 

array of fact patterns as they arise. 

As an initial matter, a number of 

commenters’ examples fall within the 

general categories of control already 

identified in the regulatory text. For 

example, the worker’s controlling 

whether to work at all, controlling when 

the work is conducted, and choosing 

between work opportunities based on 

prices are all examples of the worker’s 

setting his or her schedule or selecting 

his or her projects, which the regulatory 

text identifies as examples of the 

worker’s control over the work. 

Similarly, the potential employer’s 

requiring a set schedule or minimum 

hours, controlling when the individual 

can take meal and rest breaks, 

controlling when the individual can 

take time off, and restricting the range 

of assignments that are offered to the 

worker are all examples of the potential 

employer’s control over the worker’s 

schedule, workload, or both, which the 

regulatory text identifies as examples of 

the potential employer’s control over 

the work. 

Moreover, as explained in the NPRM 

preamble, the Department is concerned 

that application of the economic reality 

factors has resulted in certain overlaps 

between the factors. See 85 FR 60607– 

08 (identifying ways in which the 

former skill/initiative, permanence, and 

‘‘integral’’ factors considered control). 

Consistent with that discussion and in 

the interest of further clarification, the 

Department reiterates that the worker’s 

ability to exercise significant initiative, 

whether the potential employer directly 

or indirectly requires the worker to 

work exclusively for it, and the 

potential employer’s ability to compel 

the worker’s attendance to work on a 

consistent basis or otherwise closely 

supervise and manage performance of 

the work are examples of relevant types 

of control and are part of the control 

analysis. And as stated above, the 

Department agrees that who controls the 

manner and means by which the work 

is performed is a key component of the 

control analysis. In addition, the 

Department approvingly cited in the 

NPRM preamble cases in which the 

workers’ ability to accept or reject 

projects or deliveries without negative 

repercussions or retaliation,23 the 

potential employer’s lack of close 

supervision or specifications how the 

workers should do the work,24 and the 

potential employer’s allowing the 

workers broad discretion in the manner 

in which to complete their work 25

indicated substantial control over the 

work by the workers. Finally, the 

Department agrees that the various 

examples of types of control identified 

by the commenters above may, at least 

in some factual circumstances, be 

relevant to the control analysis. 

Ultimately, however, it is not 

possible—and would be 

counterproductive—to identify in the 

regulatory text every type of control 

(especially industry-specific types of 

control) that can be relevant when 

determining under the FLSA whether a 

worker is an employee or independent 

contractor. As explained above, the 

Department purposefully articulated the 

control analysis in a general manner to 

encompass various different types of 

control that the individual worker and 

the potential employer may exercise 

over the working relationship, and to 

avoid any unintended inferences 

regarding omitted types of control. 

Accordingly, any type of control over 

the work by the individual worker or 

the potential employer may be 

considered, although some types of 

control are not probative of economic 

dependence as set forth in the final 

regulatory text (and discussed below). 

The Owner-Operator Independent 

Drivers Association (OOIDA) objected 

that the proposal ‘‘offers no guidance on 

how’’ the examples of types of control 

‘‘should be weighed against each other’’ 

and asked whether the Department 

intends ‘‘that a worker must satisfy all 

of the criteria that it mentions in order 

to be an independent contractor,’’ or if 

there is ‘‘some other balance when 

evaluating this factor.’’ OOIDA noted 

that although the proposal stated that no 

single factor of the economic reality test 

is dispositive, ‘‘it does not offer the 

same clarification when considering the 

details within a single factor.’’ As 

explained above, any type of control 

over the work by the individual worker 

or the potential employer may be 

considered to the extent it is probative 

as to whether the individual is, as a 

matter of economic reality, in business 

for himself, as opposed to being 

economically dependent on the 

potential employer for work. No single 

example of control, if present or not 

present, is necessarily dispositive as to 

whether the control factor indicates 

economic dependence. The examples 

are simply that: Examples. 

c. Responses to Comments Regarding 

Examples of Requirements That Are Not 

Probative 

Despite the final rule’s broad 

articulation of the control factor, not 

every requirement or limitation on the 

means of doing business constitutes 

control for the purpose of analyzing 

whether a worker is an employee under 

the FLSA. The proposed regulatory text 

contained examples of requirements by 

a potential employer that do not 

constitute control and thus are not 

probative to the ultimate inquiry of 

whether the individual is, as a matter of 

economic reality, in business for 

himself. These are requirements to 

‘‘comply with specific legal obligations, 

satisfy health and safety standards, carry 

insurance, meet contractually agreedupon deadlines or quality control 

standards, or satisfy other similar terms 

that are typical of contractual 

relationships between businesses (as 

opposed to employment relationships).’’ 

In other words, insisting on adherence 

to certain rules to which the worker is 

already legally bound would not make 

the worker more or less likely to be an 

employee. 

NELA challenged the Department’s 

‘‘claims that case law supports this 

approach’’ and asserted that ‘‘[t]he 

majority view among courts . . . is that 

evidence of a business compelling its 

workers to comply with certain legal 

obligations or customer requirements is 

probative of control over the work 

relationship’’ (citing Scantland v. Jeffry 

Knight, Inc., 721 F.3d 1308, 1316 (11th 

Cir. 2013), among other cases). NELA 

added that ‘‘[c]ourts have routinely held 

that employer guidelines put in place to 

ensure that workers conform with the 

law or follow safety regulations 

constitute control over employees’’ 

(citing Narayan v. EGL, Inc., 616 F.3d 

895, 902 (9th Cir. 2010), among other 

cases). The National Women’s Law 

Center similarly stated that ‘‘courts have 

regularly rejected arguments that 

external requirements imposed by the 

defendant company’s customers are 

irrelevant to the right to control factor’’ 

(citing cases). NELP asserted that the 

Department’s ‘‘attempts to take away 

consideration of certain employer 

controls based on the source of the 

control’’ is ‘‘nonsense’’ because ‘‘if 

legislators or regulators have placed an 

obligation on employers to comply with 

certain laws, that makes the worker less 

independent and more dependent on 

that employer, and this should be 

accorded weight.’’ AFL–CIO commented 

that the ‘‘categorical exclusion of 

evidence of control based solely on the 

reasons why the employer exercises the 


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26The court also relied on the employers’ close 

supervision, control over schedules, and ability to 

prevent technicians from hiring helpers or working 

for others to conclude that the control factors 

weighed in favor of employee classification. 

Scantland, 721 F.3d at 1314–15. 

27 In Narayan, the Ninth Circuit applied 

California law—not the FLSA—and merely recited 

requirements imposed by the potential employer to 

comply with certain legal obligations among a 

litany of examples of control that precluded 

summary judgment on the employee versus 

independent contractor issue in that case. See 616 

F.3d at 900–02. 

control is both irrational and contrary to 

Supreme Court precedent and Congress’ 

intent.’’ And the United Brotherhood of 

Carpenters and Joiners of America 

asserted that the Department’s proposal 

would ‘‘create[ ] a gaping hole that is 

fertile ground for exploitation by 

irresponsible employers like the ones 

we find in the construction industry.’’ 

On the other hand, the Coalition to 

Promote Independent Entrepreneurs 

‘‘strongly agree[d]’’ with this proposal 

and ‘‘agree[d] that these types of 

requirements frequently apply to work 

performed by employees and 

independent contractors alike and thus 

are not probative of whether an 

individual is economically dependent 

on a company.’’ In addition, NRF 

asserted that ‘‘this clarification is 

important, as there is a difference 

between ‘control’ and ‘quality control’ 

and/or other performance standards.’’ 

And the Independent Bakers 

Association ‘‘strongly support[ed] the 

proposed clarification that requiring an 

individual to comply with specific legal 

obligations typical of business 

relationships would not constitute 

evidence of control or make an 

individual more or less likely to be an 

employee.’’ See also SHRM 

(‘‘support[ing] the [p]roposed . . . 

recognition that contracting parties 

should be able to build compliance 

with, for example, specific legal 

obligations, satisfy health and safety 

standards, and the carrying of insurance 

into the contractual relationship’’). 

The Department understands that 

some courts have found requirements 

that workers comply with specific legal 

obligations or meet quality control 

standards to be indicative of employee 

status. In particular, the Eleventh 

Circuit in Scantland stated that it 

examines ‘‘the nature and degree of the 

alleged employer’s control, not why the 

alleged employer exercised such 

control’’ and that ‘‘a company must hire 

employees, not independent 

contractors’’ if ‘‘the nature of [its] 

business requires [the] company to exert 

control over workers to the extent that 

[the defendant] has allegedly done.’’ 721 

F.3d at 1316. The Scantland court 

correctly recognized that the ultimate 

inquiry in the economic reality test is 

‘‘whether an individual is in business 

for himself or is dependent upon 

finding employment in the business of 

others.’’ 721 F.3d at 1312 (quotation 

marks omitted). But to answer that 

question it is necessary to consider 

‘‘why’’ the potential employer imposed 

a requirement. If the reason for a 

requirement applies equally to 

individuals who are in business for 

themselves and those who are 

employees, imposing the requirement is 

not probative. See Parrish, 917 F.3d at 

379 (‘‘although requiring safety training 

and drug testing is an exercise of control 

in the most basic sense of the word, . . . 

[r]equiring . . . safety training and drug 

testing, when working at an oil-drilling 

site, is not the type of control that 

counsels in favor of employee status.’’). 

The Scantland court’s discussion of 

the control factor included the fact that 

‘‘[t]echnicians could also be . . . fired, 

for consistently misbilling, fraudulently 

billing, stealing, . . . [and] having 

consistently low quality control ratings’’ 

as evidence that the control factor 

weighed in favored employee 

classification. 721 F.3d at 1314 (11th 

Cir. 2013).26 However, employees and 

independent contractors alike are 

routinely terminated for fraud, theft, 

and substandard work. Such dismissal 

are therefore not probative as to whether 

and the dismissed workers were in 

business for themselves, as opposed to 

being economically dependent on the 

potential employer. In contrast, 

dismissals for failing to work mandatory 

hours or for disregarding close 

supervision would be probative because 

mandatory hours and close supervision 

are typically not imposed on 

individuals who are in business for 

themselves. At bottom, the question of 

‘‘why’’ workers were dismissed matters 

a great deal. 

In any event, Scantland’s reasoning 

appears to be in the minority among 

courts of appeals.27 As explained in the 

NPRM preamble, other courts have 

concluded that requiring such types of 

compliance is not probative of an 

employment relationship. See, e.g., 

Parrish 917 F.3d at 379; Iontchev v. 

AAA Cab Serv., Inc., 685 F. App’x 548, 

550 (9th Cir. 2017) (noting that the 

potential employer’s ‘‘disciplinary 

policy primarily enforced the Airport’s 

rules and [the city’s] regulations 

governing the [drivers’] operations and 

conduct’’ in finding that the potential 

employer ‘‘had relatively little control 

over the manner in which the [d]rivers 

performed their work’’); Mid-Atl. 

Installation, 16 F. App’x at 106 

(rejecting an argument that backcharging 

the workers ‘‘for failing to comply with 

various local regulations or with 

technical specifications demonstrates 

the type of control characteristic of an 

employment relationship,’’ and noting 

that withholding money in such 

circumstances is common in contractual 

relationships); cf. Mr. W Fireworks, 814 

F.2d at 1048 (finding that, because a 

scheduling requirement was imposed by 

the potential employer and not by state 

law, it suggested control over the 

workers). And courts have reached 

analogous conclusions in joint employer 

cases. See, e.g., Zheng v. Liberty Apparel 

Co. Inc., 355 F.3d 61, 75 (2d Cir. 2003) 

(finding that control with respect to 

‘‘contractual warranties of quality and 

time of delivery has no bearing on the 

joint employment inquiry’’ because 

such control is ‘‘perfectly consistent 

with a typical, legitimate subcontracting 

relationship’’); Moreau v. Air France, 

356 F.3d 942, 950–51 (9th Cir. 2003) 

(noting that control exercised by 

potential joint employer over 

contractor’s employees to ‘‘ensure 

compliance with various safety and 

security regulations’’ is ‘‘qualitatively 

different’’ from control that indicates 

employer status). 

In addition to the supportive case law, 

the extent to which courts take differing 

approaches to the probative value of 

such requirements is yet another 

example of the need identified by the 

Department for a clear and uniform 

standard under the FLSA to distinguish 

between employees and independent 

contractors. Moreover, the Department 

believes that these types of requirements 

are generally imposed by employers on 

both employees and independent 

contractors (as some commenters 

indicated). Employers expect and often 

require all of their workers to, for 

example, comply with the law, satisfy 

health and safety standards, and meet 

deadlines and quality standards. Thus, 

the existence of the requirements 

themselves are not probative of whether 

the worker is an employee or 

independent contractor. Other indicia of 

control over the work, including the 

indicia of control identified in the final 

regulatory text, are more probative of 

the worker’s economic dependence or 

independence. Accordingly, the 

Department retains in the final 

regulatory text’s statement that 

requirements by the potential employer 

that the worker ‘‘comply with specific 

legal obligations, satisfy health and 

safety standards, carry insurance, meet 

contractually agreed-upon deadlines or 

quality control standards, or satisfy 

other similar terms that are typical of 

contractual relationships between 


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28The Department’s Joint Employer final rule was 

mostly vacated by the U.S. District Court for the 

Southern District of New York for reasons unrelated 

to the ‘‘specific legal obligations’’ language. See 

New York v. Scalia, No. 1:20–cv–1689–GHW, 2020 

WL 5370871 (S.D.N.Y. Sept. 8, 2020). The 

Department appealed the decision to the U.S. Court 

of Appeals for the Second Circuit on November 6, 

2020. 

29 In a separate section of its comment, Seyfarth 

Shaw recommended that the Department state that 

the following are not evidence of a potential 

employer’s control over the work of the worker: The 

business provides information regarding the final 

result to be accomplished by the worker; the 

business provides customer specifications/details 

and feedback relating to the work (including 

requesting confirmation that the customer feedback 

has been addressed); the business provides time 

frames within which services can be provided in 

light of the services contracted for, and/or the time 

sensitivity or perishable nature of the services/ 

products; the business’ right to enforce contractual 

obligations; the business provides the worker 

suggestions, recommendations, guidance, and/or 

tips that are not mandated but informational 

relating to the services; and the business pays the 

worker by the hour where it is customary in the 

particular business/trade to do so (e.g., attorneys, 

physical trainers). 

businesses (as opposed to employment 

relationships)’’ are not ‘‘control that 

makes the individual more or less likely 

to be an employee under the Act.’’ 

Although the ATA ‘‘strongly agrees’’ 

with the Department’s proposal that 

requirements by the potential employer 

that the worker ‘‘comply with specific 

legal obligations’’ would not be ‘‘control 

that makes the individual more or less 

likely to be an employee under the Act,’’ 

it suggested that ‘‘specific’’ be changed 

to ‘‘any’’ in the final regulatory text. 

ATA explained that referring to 

‘‘specific’’ legal obligations ‘‘may 

unfortunately result in a great deal of 

litigation over whether any particular 

aspect of a contract is ‘specifically’ 

mandated by law.’’ It cited, as examples, 

laws that impose general safety 

standards with which employers 

determine the specifics of how to 

comply. See also NHDA (‘‘The proposal 

carves out compliance with specific 

legal obligations. However, not all legal 

obligations are specific, making other 

language in the proposal unnecessarily 

problematic.’’). 

After careful consideration, the 

Department declines to adopt the 

suggested change. As an initial matter, 

the Department used the ‘‘specific legal 

obligations’’ language in its recent Joint 

Employer Status under the Fair Labor 

Standards Act final rule. See 85 FR 2859 

(finalizing 29 CFR 791.2(d)(3)).28 The 

Department noted there that the 

obligations include compliance with the 

FLSA or other similar laws, sexual 

harassment policies, background 

checks, or workplace safety practices 

and protocols. See id. The Department 

did not intend a high degree of 

specificity there and intends the same 

meaning here. Moreover, a potential 

employer’s requirement that a worker 

comply with legal obligations without 

any further specificity as to the law or 

the actual obligations is unlikely to be 

probative of control in the first place. 

Accordingly, retaining the word 

‘‘specific’’ is consistent with the 

Department’s position that, although 

requiring workers to comply with legal 

obligations could be some manner of 

control, such requirements reflect the 

applicable legal regime more than the 

potential employer’s control, and 

encouraging such requirements in 

contractual work relationships has 

obvious benefits for employers, workers, 

and society generally. 

Other commenters expressed support 

for the Department’s proposal to carve 

out from the control analysis the 

identified employer actions toward 

individual workers, but also requested 

that the Department expand its proposal 

by identifying many additional 

employer requirements as not types of 

control that make the individual more 

or less likely to be an employee under 

the Act. For example, SHRM asserted 

that ‘‘the Final Rule must emphasize 

that all workers, regardless of their 

formal employment status, should be 

able to benefit from the training, 

resources, and positive workplace 

practices as those who are directly 

employed in the same workplace,’’ and 

it gave examples of workplace trainings 

and audit measures. The U.S. Chamber 

of Commerce stated that the Department 

‘‘should expand this concept’’ and 

‘‘explicitly state that workers and 

businesses should not be discouraged 

from incorporating terms (and audit and 

other certification processes) into their 

relationship that support sound, lawful, 

safe work practices.’’ It suggested the 

following examples of such terms: 

‘‘Incorporation of an obligation that the 

work be performed pursuant to 

acceptable professional, industry and 

customer service standards, as well as 

commonly accepted safety, ethics, 

licensure and other standards and 

recommendations (such as compliance 

with limitations or control imposed or 

necessitated by law, regulation, order or 

ordinance).’’ See also Seyfarth Shaw 

(requesting that the following employer 

actions toward workers be excluded 

from the control analysis: ‘‘(1) 

compliance with professional 

obligations and ethics standards; (2) 

compliance with regulatory obligations, 

including over health and safety; (3) 

compliance with other published 

industry standards; (4) compliance with 

applicable local, state, and national 

licensure standards and rules; and (5) 

additional contractual term examples of 

agreed upon results and deadlines’’); 29

WPI (asserting that the potential 

employer’s practice or ability to do the 

following are not probative: Requiring 

the individual to comply with or pass 

down contractual and legal obligations 

to subcontractors and employees; 

requiring the individual to comply with 

customer requirements; tracking and 

monitoring data related to the 

individual; providing the individual 

with market data on pricing; 

establishing default pricing that the 

individual may change; providing the 

individual with information related to 

the establishment or running of a 

business; providing the individual with 

emergency assistance (e.g., protective 

equipment during a public-health 

crisis); and complying with Federal, 

state or locals laws related to a 

contracting relationship). Likewise, the 

Financial Services Institute requested 

that the Department carve out from the 

control analysis requirements that 

‘‘Independent Broker-Dealers’’ (IBDs) 

place on their ‘‘financial advisors’’ to 

‘‘comply with requirements imposed by 

FINRA, the SEC, and state securities 

regulators’’ and exclusivity 

requirements that IBDs place on their 

financial advisors to comply with ‘‘the 

extensive supervisory obligations 

imposed by the SEC and FINRA.’’ 

OOIDA also expressed concerns about 

exclusivity requirements and sought 

clarification that a potential employer’s 

compliance with ‘‘Federal regulations 

requir[ing] that an owner-operator 

lease[ ] his or her equipment exclusively 

to a carrier for the duration of the lease’’ 

not affect the control analysis. Finally, 

CPIE asked the Department to ‘‘make 

clear that duties or requirements 

imposed by any third party, whether it 

be a government agency or a third-party 

customer, . . . be disregarded’’ when 

applying the control factor. See also 

NHDA (‘‘[C]ontrol weighing in favor of 

employee status should be control 

exercised by the potential employer that 

originates with the potential employer 

and does not originate from outside, 

independent forces or circumstances, 

such as customer requirements or 

governmental regulations.’’). 

The Department does not agree with 

CPIE that any requirement stemming 

from ‘‘duties or requirements imposed 

by any third party’’ be ‘‘disregarded’’ or 

with NHDA that only control ‘‘that 

originates with the potential employer’’ 

can indicate employee status. This is 

because a third party may explicitly or 

impliedly encourage businesses to 


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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 1185 

30Uber requested that the Department clarify that 

background checks are not an indicia of control: 

‘‘Where a business is required by law to engage in 

certain activities (such as screening potential 

workers for violent crime history), the Department 

should make clear that this required screening is 

not an indicia of control.’’ However, requiring a 

worker to undergo and pass a background check 

when the law requires it falls in the ‘‘comply with 

specific legal obligations’’ category. No further 

clarification is necessary. 

impose requirements on workers that 

signify employee classification. For 

example, clients of a home cleaning 

company may prefer that the company’s 

workers wear uniforms, use the same 

equipment, and be closely supervised. 

Imposing such requirements, even to 

satisfy client preferences, makes the 

workers more likely to be classified as 

employees because those requirements 

are inconsistent with the workers being 

in business for themselves. A company 

may also require that workers it hires 

perform timely and high-quality work, 

as clients surely prefer. But 

contractually agreed-upon deadlines 

and quality standards do not signify 

employee classification because 

independent businesses routinely agree 

to meet deadlines and quality standards 

as part of their businesses. 

In response to comments requesting 

that the Department identify many 

additional employer requirements as not 

types of control that make the 

individual more or less likely to be an 

employee under the Act, the 

Department declines to change its 

proposed regulatory text. As an initial 

matter, many of the requested additions 

are already covered by the proposed 

text. For example, the following 

requested additions are requirements to 

‘‘comply with specific legal obligations’’ 

and thus already covered: Requirements 

to comply with limitations or control 

imposed or necessitated by law, 

regulation, order, or ordinance; 

regulatory obligations; Federal, state, or 

local laws related to a contracting 

relationship; requirements imposed by 

FINRA, the SEC, and state securities 

regulators; and Federal regulations 

requiring that an owner-operator lease 

his or her equipment exclusively to a 

carrier for the duration of the lease.30

Other requested additions may fall into 

the ‘‘satisfy health and safety standards’’ 

category (for example: Requiring that 

the work be performed pursuant to 

commonly accepted safety standards; 

and providing the individual emergency 

assistance such as protective equipment 

during a public-health crisis) or the 

‘‘meet contractually agreed-upon 

deadlines or quality control standards’’ 

category (for example: Agreements that 

the work be performed pursuant to 

acceptable professional, industry, or 

published industry standards; 

agreements to comply with applicable 

local, state, and national licensure 

standards and rules; and agreed upon 

results and deadlines). Other requested 

additions are narrow or industryspecific in nature, and the Department 

prefers general guidance that may be 

used by as many employers and workers 

as possible. 

In any event, it is not possible to 

identify in the regulation every 

employer requirement that is not the 

type of control that makes the 

individual more or less likely to be an 

employee under the Act. The regulatory 

text accounts for this with a broader 

final category: Requiring the worker to 

‘‘satisfy other similar terms that are 

typical of contractual relationships 

between businesses (as opposed to 

employment relationships).’’ This 

category recognizes that contractual 

work relationships currently vary and 

will evolve going forward, and provides 

that additional employer requirements 

that are not expressly identified in the 

regulatory text but which are similar to 

those identified and are typical of such 

relationships do ‘‘not constitute control 

that makes the individual more or less 

likely to be an employee under the Act.’’ 

SHRM requested that the Department 

exclude from the control analysis the 

offering of benefits such as ‘‘health 

insurance, bonuses, or retirement 

savings.’’ According to SHRM, ‘‘the 

modern workplace would suffer if 

businesses were effectively barred from 

providing workplace enhancements that 

all workers should enjoy like healthcare 

or retirement savings.’’ Other 

commenters made overlapping requests, 

although not necessarily in the context 

of applying the control factor. For 

example, TechNet requested that the 

Department add a ‘‘safe harbor’’ stating 

that ‘‘a worker does not lose his or her 

independent status solely because a 

network platform provides the worker 

with emergency aid or benefits allowed 

or required under state law.’’ Similarly, 

WPI requested a general ‘‘safe harbor’’ 

with respect to the provision of 

‘‘protections or benefits as allowed or 

required by Federal, state or local laws, 

including but not limited to minimum 

guaranteed earnings, health insurance, 

retirement benefits, health or retirement 

subsidies, life insurance, workers 

compensation or similar insurance, 

unemployment insurance, sick or other 

paid leave, training and expense 

reimbursement.’’ 

The Department declines to change 

the regulatory text in response to these 

comments. The offering of health, 

retirement, and other benefits is not 

necessarily indicative of employment 

status. For example, payment of 

proceeds owed into a worker’s own 

health plan or retirement account would 

not indicate an employment 

relationship. This is because it is 

reasonable for an independent 

contractor to have a personal health or 

retirement plan, and the precise method 

of compensation—whether cash, 

contributions to an account, or some 

other method—is not relevant to the 

question of economic dependence. 

However, 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. Certain other benefits could 

also suggest employee status. For 

example, sick or other paid leave, 

especially the potential employer’s 

administration and authorization of the 

leave, could be indicative of the 

potential employer’s control over the 

worker’s schedule. Finally, offering a 

bonus to a worker may or may not be 

indicative of employee status. For 

example, a worker’s participation in a 

bonus or profit sharing plan in which he 

or she receives a bonus depending on 

the employer’s, a division of the 

employer’s, or his or her own 

performance over a period of time could 

limit the worker’s ability to affect his or 

her profit or loss through initiative or 

investment—suggesting economic 

dependence and thus employee status. 

But a contractual agreement to provide 

a worker with a fixed bonus if the 

worker completes a job by a certain 

deadline or completes a certain number 

of tasks over a fixed period is typical of 

contractual relationships between 

businesses and itself does not make the 

worker more or less likely to be an 

employee under the Act. Even if, based 

on the circumstances of a particular 

case, the provision of certain health, 

retirement, or other benefits suggests 

classification as an employee, that fact 

is not determinative by itself because 

other facts and factors must also be 

considered. 

2. The ‘‘Opportunity for Profit or Loss’’ 

Factor 

The second core factor identified in 

the proposed regulatory text was the 

‘‘individual’s opportunity for profit or 

loss.’’ 85 FR 60639. This factor, 

included at proposed § 795.105(d)(1)(ii), 

‘‘weighs towards the individual being 

an independent contractor to the extent 

the individual has an opportunity to 

earn profits or incur losses based on his 

or her exercise of initiative (such as 

managerial skill or business acumen or 

judgment) or management of his or her 


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1186 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

investment in or capital expenditure on, 

for example, helpers or equipment or 

material to further his or her work.’’ 

Proposed § 795.105(d)(1)(ii) further 

explained that, ‘‘[w]hile the effects of 

the individual’s exercise of initiative 

and management of investment are both 

considered under this factor, the 

individual does not need to have an 

opportunity for profit or loss based on 

both for this factor to weigh towards the 

individual being an independent 

contractor.’’ In addition, under the 

proposal, this factor ‘‘weighs towards 

the individual being an employee to the 

extent the individual is unable to affect 

his or her earnings or is only able to do 

so by working more hours or more 

efficiently.’’ Numerous comments were 

submitted regarding the proposals to 

analyze investment through the lens of 

opportunity for profit or loss and to 

focus that analysis on the worker’s 

investment rather than comparing the 

worker’s investment to the potential 

employer’s investment. One commenter 

requested eliminating this factor 

altogether, and several commenters 

requested changes to the other aspects 

of the proposed opportunity factor 

section. 

a. Whether To Analyze Investment 

Through the Lens of Opportunity for 

Profit or Loss 

Some commenters opposed the 

proposal to consider the individual 

worker’s ‘‘management of his or her 

investment in or capital expenditure on, 

for example, helpers or equipment or 

material to further his or her work’’ as 

part of the opportunity factor. For 

example, NELA stated that a worker’s 

investment has ‘‘been a critically 

important factor in the economic 

realities test analysis’’ and that 

‘‘[d]iscounting this important piece of 

the economic reality test, as the 

Department has done here, plainly 

makes it easier for businesses to require 

workers to make significant financial 

investments without risking a finding of 

employee status.’’ The State AGs 

similarly commented that the proposed 

approach of considering investment 

only in the context of opportunity for 

profit or loss ‘‘inappropriately 

subordinates the investment factor to 

the opportunity for profit or loss’’ factor. 

According to the State AGs, ‘‘[c]ourts 

consider both factors, often together, but 

investment ‘is, itself, indicative of 

independent contractor status’ 

especially in smaller businesses’’ 

(quoting Saleem v. Corp. Transp. Group, 

Ltd., 854 F.3d 131, 144 n.29 (2d Cir. 

2017)). UPS said that ‘‘workers [who] 

make little or no monetary investment 

toward completion of the work . . . are 

more likely to be dependent on the 

company,’’ but that the Department’s 

proposal ‘‘ignores that reality’’ by 

suggesting that initiative and investment 

‘‘are on equal footing.’’ NELP stated 

that, although opportunity for profit or 

loss and investment ‘‘are linked, they 

are hardly duplicative and separately 

serve as useful indicia of an entity’s 

status under the FLSA, as the Supreme 

Court’s tests note.’’ 

On the other hand, some commenters 

supported the proposal to consider 

investment in the opportunity factor. 

For example, according to WPI, ‘‘[t]he 

Department’s proposal to combine 

[opportunity for profit or loss] with an 

individual’s investment in facilities and 

equipment, following Second Circuit 

precedent, is a welcome change that 

will bring clarity and reduce overlap.’’ 

It added that ‘‘[w]ise decisions about 

investments are perhaps the clearest 

path to increasing profits or suffering 

losses.’’ CPIE supported the proposed 

‘‘adoption of the Second Circuit’s 

approach of combining the factors 

‘opportunity for profit or loss’ and 

‘investment,’ and not treating them as 

separate factors.’’ According to CPIE, the 

proposal ‘‘better captures both the 

manufacturing-based independent 

contractor (who likely has a tangible 

capital business investment) and the 

new-economy independent contractor 

(who likely does not).’’ 

Having carefully considered the 

comments on this issue, the Department 

adopts its proposal, consistent with 

Second Circuit case law, to consider 

investment as part of the opportunity 

factor. Some courts have acknowledged 

that the two concepts are related while 

still keeping the factors separate. See 

McFeeley, 825 F.3d at 243; Lauritzen, 

835 F.2d at 1537. Other courts do not 

expressly acknowledge that they are 

related but consider investment when 

evaluating opportunity for profit or 

loss—resulting in unnecessary and 

duplicative analysis of the same facts 

under two factors. See, e.g., Mid-Atl. 

Installation, 16 F. App’x at 106–07 

(finding that the worker’s capital 

investments in tools, equipment, and a 

truck indicated independent contractor 

status under both the opportunity and 

the investment factors). And 

consideration of investment separately 

has caused other courts to discuss the 

worker’s involvement in outside 

businesses in the context of opportunity 

for profit or loss. See, e.g., Parrish, 917 

F.3d at 384 (considering consultant’s 

management of a goat farm). After 

considering these varying approaches, 

the Department believes that adopting 

the Second Circuit’s approach best 

furthers the Department’s goal: A clear 

and non-duplicative analysis for 

determining employee versus 

independent contractor status. In sum, 

the individual worker’s meaningful 

capital investments may evince 

opportunity for profit or loss: 

‘‘[e]conomic investment, by definition, 

creates the opportunity for loss, [and] 

investors take such a risk with an eye to 

profit.’’ Saleem, 854 F.3d at 145 n.29; 

see also Superior Care, 840 F.2d at 1060 

(identifying ‘‘the workers’ opportunity 

for profit or loss and their investment in 

the business’’ as a single factor). 

Moreover, considering investment as 

part of opportunity for profit or loss is 

consistent with the Supreme Court’s 

opinion in Silk which articulated the 

two factors separately but analyzed 

them together. In particular, the Court 

found that coal unloaders were 

employees because they had ‘‘no 

opportunity to gain or lose except from 

the work of their hands and [ ] simple 

tools,’’ while truck drivers who invested 

in their own vehicles had ‘‘opportunity 

for profit from sound management’’ of 

that investment by, for instance, hauling 

for different customers. Id. at 719. Thus, 

it framed the analysis as whether 

workers are more like unloaders whose 

profits were based solely on ‘‘the work 

of their hands and [ ] simple tools’’ or 

the drivers whose profits depended on 

their initiative and investments. See id. 

As the Court explained decades ago and 

as the Second Circuit noted much more 

recently in Saleem, investment is a 

pathway to opportunity for profit or 

loss. 

In response to NELA and likeminded 

commenters’ concern that employers 

may require significant investments by 

their workers to avoid employee status, 

the Department reiterates that the 

investment must be capital in nature 

and consistent with the worker being in 

business for him/herself for the 

investment to indicate an opportunity 

for profit or loss. Senator Sherrod 

Brown and 22 other senators stated that 

‘‘[r]equiring [workers] to purchase a 

franchise or their own equipment, 

including a vehicle’’ or otherwise ‘‘take 

on financial risk as a condition of 

employment does not convert an 

employee into an independent 

contractor under the FLSA.’’ While no 

single fact or factor may ‘‘convert an 

employee into an independent 

contractor,’’ the prospect of financial 

risk and reward plays an important role 

in distinguishing ‘‘wage earners toiling 

for a living’’ from ‘‘independent 

entrepreneurs seeking a return on their 

risky capital investments.’’ Mr. W. 

Fireworks, 814 F.2d at 1051. Moreover, 

it matters why certain investments are 

required. If certain capital investments 


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31The American Society of Travel Advisors 

disagreed at least in part, commenting that 

‘‘workers in many service industries may make only 

a minimal investment in equipment or materials 

and in such situations this consideration, by itself, 

should not be taken to weigh in favor of employee 

status.’’ 

32LocumTenens, an online company that 

specializes in the temporary placement of 

physicians and other health clinicians, requested 

that the Department eliminate from the economic 

reality test consideration of whether an individual 

has an opportunity for profit or loss. According to 

LocumTenens, its physicians and clinicians who 

provide temporary healthcare services ‘‘do not have 

an obvious investment or opportunity for profit 

when they step in’’ for another physician or 

clinician. However, as explained later, the 

Department believes that opportunity for profit or 

loss is very predictive of a worker’s status as an 

employee or independent contractor. In addition, 

the rule requires a worker to exercise personal 

initiative or manage capital investments, but not 

necessarily both, for the opportunity factor to 

indicate independent contractor status. In other 

words, an absence of capital investment does not 

prevent an individual from having an opportunity 

for profit or loss, because such opportunity can be 

based on the individual’s initiative. Nor does such 

absence necessarily prevent an individual from 

being properly classified an independent 

contractor, particularly in knowledge-based 

industries such as medicine where human capital 

matters more than physical capital. 

are necessary to perform the job for 

which the contractor is hired, then 

requiring a contractor to make such 

investments would be consistent with 

the contractor being in business for himor herself. For example, a company that 

hires independent contractors to haul 

freight may obviously require that 

drivers bring their own vehicles. Silk 

331 U.S at 719. In contrast, a 

requirement to ‘‘invest’’ in specific, 

company-provided equipment would 

not be consistent with the worker being 

in business for him- or herself, and may 

constitute a consideration under the 

control factor that points towards 

employee status. See Scantland, 721 

F.3d at 1318 (concluding that 

technicians’ ‘‘expenditures [in 

equipment and materials] detract little 

from the[ir] economic dependence on 

Knight’’ in part because ‘‘many 

technicians purchased specialty tools 

from Knight directly via payroll 

withholdings’’). As such, OOIDA’s 

concern ‘‘that any requirement that a 

worker must purchase services or 

equipment from the business for which 

they work [w]ould weigh in favor of 

employee status’’ is misplaced. See also 

SWRCC (‘‘[T]his standard would 

provide a perverse incentive for 

companies to require putative 

employees to maintain their own 

equipment in an effort to steer those 

employees to independent contractor 

status.’’). Consistent with the economic 

dependence inquiry, an investment 

must indicate an independent business 

by the worker, as opposed to merely 

being required by the potential 

employer, for it to indicate an 

opportunity for profit or loss. 

In response to the State AGs, the 

Department’s approach does not 

subordinate investment; it can still 

separately indicate independent 

contractor status as they suggest. 

Finally, the Department’s approach is 

not contrary to UPS’ assertion that 

workers who make little or no 

investment ‘‘are more likely to be 

dependent’’ on the potential 

employer.31 Workers who make little or 

no investment are more likely to be 

employees than workers who make 

significant investments, but of course, 

such a worker’s ultimate status as an 

employee or independent contractor 

will also depend on other factors. As the 

Department explained in the NPRM 

preamble, workers who do not make 

significant investments may still be 

independent contractors: ‘‘while the 

presence of significant capital 

investment is still probative, its absence 

may be less so in more knowledge-based 

occupations and industries. Indeed, 

technological advances enable, for 

example, freelance journalists, graphic 

designers, or consultants to be 

entrepreneurs with little more than a 

personal computer and smartphone.’’ 85 

FR 60609 (citing Faludi v. U.S. Shale 

Sols., L.L.C., 950 F.3d 269, 276 (5th Cir. 

2020)); see also Meyer v. United States 

Tennis Ass’n, 607 F. App’x 121, 123 (2d 

Cir. 2015) (concluding that workers who 

invested little were independent 

contractors primarily because of their 

control over the work and their 

initiative); Lauritzen, 835 F.2d at 1540– 

41 (Easterbrook, J. concurring) 

(‘‘[P]ossess[ing] little or no physical 

capital . . . is true of many workers we 

would call independent contractors. 

Think of lawyers, many of whom do not 

even own books. The bar sells human 

capital rather than physical capital, but 

this does not imply that lawyers are 

‘employees’ of their clients under the 

FLSA.’’).32

b. Whether To Analyze the Worker’s 

Investment or Compare the Worker’s 

Investment With That of the Potential 

Employer 

The Department noted in the NPRM 

preamble that, when considering 

investment, some courts use ‘‘a side-byside comparison method’’ that directly 

compares the worker’s individual 

investment to the investment by the 

potential employer. See 85 FR 60614 

(citing cases). The Department 

explained that ‘‘such a ‘side-by-side 

comparison method’ does not illuminate 

the ultimate question of economic 

dependence,’’ but instead ‘‘merely 

highlights the obvious and unhelpful 

fact that individual workers—whether 

employees or independent contractors— 

likely have fewer resources than 

businesses’’ that, for example, maintain 

corporate offices. Id. (citing cases). The 

Department received a number of 

comments addressing its proposed 

rejection of the relative investment 

approach. 

For example, UPS stated that the 

Department’s proposal ‘‘undervalues 

comparative analysis of investment’’ 

and noted that courts ‘‘have evaluated 

investment comparatively—correctly 

measuring the worker’s investment 

against the company’s’’ (citing cases). 

NELA added that ‘‘comparing workers’ 

investments to the employer’s 

investments’’ has been ‘‘a critically 

important factor in the economic 

realities test analysis’’ and ‘‘must be 

done in the context of the working 

relationship.’’ TRLA objected that ‘‘the 

proposed test does not include the Fifth 

Circuit’s ‘extent of the relative 

investments of the worker and alleged 

employer’ factor’’ and asserted that, 

while its usefulness may vary 

‘‘depending on the facts of individual 

cases,’’ ‘‘its wholesale exclusion from 

the test factors is not warranted, 

especially given the Supreme Court’s 

caution against an exhaustive list’’ 

(citing Silk, 331 U.S. at 716). The 

Southwest Regional Council of 

Carpenters described the relative 

investment approach as simple and 

efficient by ‘‘lining up the expenses 

between worker and company’’ and thus 

‘‘advanc[ing] the key interest of all 

parties concerned with the 

predictability of this part of the 

independent contractor test.’’ According 

to the Pacific Northwest Regional 

Council of Carpenters, the Department 

acted ‘‘arbitrarily’’ in proposing to 

eliminate consideration of relative 

investments and asserted that, because 

‘‘virtually every craftsperson who works 

in the various carpentry trades owns his 

or her own tools,’’ the proposal would 

make ‘‘all of those individuals more 

susceptible to being classified as’’ 

independent contractors regardless 

whether the investment is small or 

extensive. 

Other commenters supported the 

Department’s proposed position. For 

example, the ATA, the Arkansas 

Trucking Association, NHDA, and 

Scopelitis, Garvin, Light, Hanson & 

Feary (on behalf of various 

transportation companies) each agreed 

with the Department’s proposal ‘‘that 

the relative investment test fashioned by 

the Fifth Circuit ‘does not illuminate the 

ultimate question of economic 


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dependence’ ’’ (quoting 85 FR 60614). 

TechNet explained that ‘‘the relative 

sizes of the parties’ investments’’ are not 

relevant to the analysis, asserting that 

‘‘[l]arge businesses may contract with 

small businesses,’’ make investments 

that ‘‘typically exceed their smaller 

partners’ investments by orders of 

magnitude . . . because of their size,’’ 

and ‘‘not endanger [their] partners’ 

independence merely because [they are] 

bigger than [their partners] are.’’ CPIE 

stated that ‘‘the determinative inquiry 

relative to investment should be 

whether the individual has a sufficient 

investment in his or her trade or 

business as to enable the individual to 

operate independently,’’ asserting that 

‘‘[t]he investment of a potential client 

has no discernible relevance to this 

inquiry.’’ See also WFCA (‘‘The issue is 

whether a worker invested in his or her 

business, not how that investment 

compares to the employing company’s 

investment.’’). 

Having carefully considered the 

comments, the Department reaffirms its 

position that comparing the individual 

worker’s investment to the potential 

employer’s investment should not be 

part of the analysis of investment. 

Comparing their respective investments 

does little more than compare their 

respective sizes and resources. In 

Hopkins v. Cornerstone America, 545 

F.3d 338, 344 (5th Cir. 2008), it was of 

course ‘‘clear that [the insurance 

company’s] investment—including 

maintaining corporate offices, printing 

brochures and contracts, providing 

accounting services, and developing and 

underwriting insurance products— 

outweighs the personal investment of 

any one Sales Leader.’’ The court, 

however, never explained how this fact 

indicated the Sales Leaders’ economic 

dependence. See id. Tellingly, when 

summing up the entirety of the facts and 

analyzing whether the workers were 

economically dependent on the 

insurance company as a matter of 

economic reality, the court did not even 

mention the insurance company’s larger 

investment. See id. at 346. And in 

Karlson, 860 F.3d at 1096, the court 

found that comparing the worker’s 

investment with the potential 

employer’s total operating expenses had 

little relevance because ‘‘[l]arge 

corporations can hire independent 

contractors, and small businesses can 

hire employees.’’ Cf. Parrish, 917 F.3d at 

383 (comparing relative investments, 

but noting that ‘‘[o]bviously, [the oil 

drilling company] invested more money 

at a drill site compared to each 

plaintiff’s investments’’ and according 

the factor little weight in light of the 

other evidence). In sum, comparing the 

relative investments does not illuminate 

the worker’s economic dependence or 

independence. By contrast, as explained 

herein, analyzing the extent to which 

the individual worker has an 

opportunity for profit or loss because of 

his or her investment in, or capital 

expenditure on, helpers or equipment or 

material to further his or her work is 

probative of the worker’s economic 

dependence or independence. 

c. Other Comments Concerning the 

Opportunity Factor 

WFCA agreed that ‘‘an evaluation of 

a worker’s investment and capital 

expenditures are relevant factors in 

determining whether he or she is an 

independent contractor’’ and suggested 

including of ‘‘a definition of what 

constitutes an investment or capital 

expense.’’ WFCA suggested the 

following: ‘‘Investments and capital 

expenditure shall include: The purchase 

or rental of tools, equipment, material, 

and office or work facilities; the 

payment for marketing and 

administrative expenses; the payment of 

costs incurred hiring or using other 

workers; and similar expenditures.’’ 

However, the regulatory text already 

identifies investment in ‘‘helpers or 

equipment or material’’ as relevant, and 

the ‘‘for example’’ preceding them in the 

regulatory text makes clear that the list 

is non-exhaustive. The Department 

believes that general and nonexhaustive examples are more helpful 

than trying to precisely identify as many 

examples of relevant investments as 

possible. 

NRF commented that ‘‘it is important 

to emphasize that it is the ‘opportunity’ 

or ‘ability’ to earn profits or incur losses 

based on investment and/or initiative, 

as opposed to the actual level of 

investment or initiative shown by the 

individual.’’ Relatedly, NRF expressed 

concern whether this factor squares 

with the discussion in proposed 

§ 795.110 that the actual practice of the 

parties involved is more relevant than 

what may be contractually or 

theoretically possible, asserting that 

‘‘the fact that someone might not engage 

in certain practices or take on certain 

risks that would further impact the level 

of profit or loss should not result in a 

finding that the individual is not an 

independent contractor, unless that 

person is prevented from doing so by 

the entity with whom the individual 

contracts.’’ Here, the Department 

believes that NRF is conflating the 

ultimate outcome of independent 

entrepreneurship (profit or loss) with 

the actions indicative of 

entrepreneurship (initiative and/or 

investment) that largely determine that 

outcome. While profits are hardly 

guaranteed for anyone in business for 

him/herself, the text at 

§ 795.105(d)(1)(ii) makes clear that 

independent contractors typically 

‘‘exercise . . . initiative’’ and/or 

‘‘manag[e] . . . investment,’’ (emphasis 

added). Thus, a lack of profit viewed in 

hindsight says little about a worker’s 

economic independence; instead, the 

focus is the degree to which the worker 

actually exercised initiative or actually 

managed investments. A worker’s 

theoretical ability to, for example, 

exercise initiative is weaker evidence 

than the worker’s actual practices. See 

e.g., Sureway Cleaners, 656 F.2d at 1371 

(‘‘[T]he fact that Sureway’s ‘agents’ 

possess, in theory, the power to set 

prices . . . and advertise to a limited 

extent on their own is overshadowed by 

the fact that in reality the ‘agents’ . . . 

charge the same prices, and rely in the 

main on Sureway for advertising.’’). 

However, a worker’s conscious decision 

to not make a particular investment 

(especially when choosing among a 

range of investments) or to not take a 

particular action (especially when 

choosing among a range of options) may 

constitute an affirmative exercise of 

initiative to consider among others 

when evaluating opportunity for profit 

or loss. In sum, in the context of the 

opportunity factor, the focus is the 

individual worker’s opportunity for 

profit or loss, as shown by meaningful 

investments or the exercise of personal 

initiative; actual profits or losses are less 

relevant. 

OOIDA expressed ‘‘concern[ ] that the 

timeline for determining profit or loss is 

not clarified in the NPRM’’ and 

explained that certain ‘‘[m]otor carriers 

that take advantage of drivers through a 

lease-purchase agreement are likely to 

argue that a driver’s opportunity for 

profit is merely a few years in the 

future, and that this full timeline must 

be considered.’’ The Department agrees 

with OOIDA that ‘‘[t]his is a fallacy’’; 

the opportunity for profit or loss must 

be reasonably current to indicate 

independent contractor status. 

Regarding the Department’s proposal 

to include initiative as a consideration 

in the opportunity factor, NRF agreed 

that ‘‘[t]he ability to impact profits or 

losses also may be dependent on 

business acumen and managerial skills, 

regardless of the ‘skill level’ of the work 

or the level of investment.’’ NRF added 

that ‘‘identifying ‘business acumen’ or 

‘management skill’ as part of the profit 

or loss factor is appropriate and 

consistent with the FLSA.’’ Senator 

Sherrod Brown and 22 other senators 

disagreed, commenting: ‘‘Just because 


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33See Goldberg v. Whitaker House Co-op., Inc., 

366 U.S. 28, 33 (1961) (plaintiffs who manufactured 

knitted goods at home were employees under the 

FLSA, in part, because ‘‘[t]he management fixes the 

piece rates at which they work’’); Rutherford Food, 

331 U.S. at 730 (because workers’ earnings 

‘‘depended upon the efficiency of their work, it was 

more like piecework than an enterprise that actually 

depended for success upon the initiative, judgment 

or foresight of the typical independent contractor’’); 

Hodgson v. Cactus Craft of Arizona, 481 F.2d 464, 

467 (9th Cir. 1973) (persons who manufacture 

novelty and souvenir gift items at homes and were 

compensated at a piece rate were employees under 

the FLSA). And in Donovan v. DialAmerica 

Marketing, Inc., the court held that homeworkers 

who were paid on a piece-rate basis to perform the 

simple service of researching telephone numbers 

were employees who lacked meaningful 

opportunity for profit or loss. See 757 F.2d 1376, 

1385 (3rd Cir. 1985). In contrast, distributors who 

recruited and managed researchers and were paid 

based on the productivity of those they managed 

were independent contractors, in part, because 

distributors’ earnings depended on ‘‘business-like 

initiative.’’ Id. at 1387. 

employees can increase their wages by 

exercising skill or initiative does not 

mean they are running a separate, 

independent business, particularly if 

they cannot pass along costs to 

customers.’’ They added that ‘‘[t]he rule 

does not include additional, critical 

considerations of skill and initiative that 

are necessary to define an employment 

relationship.’’ And Seyfarth Shaw 

requested that the Department state that 

‘‘a worker’s business acumen is to be 

interpreted to cover acumen relevant to 

the wide range of business endeavors in 

the U.S. economy, including, for 

example: Sales, managerial, customer 

service, marketing, distribution, 

communications, and other 

professional, trade, technical, and other 

learned skills, as well as other unique 

business abilities and acumen, 

including acumen that impacts a 

worker’s ability to profitably run their 

own independent business.’’ 

Having carefully considered the 

comments, the Department continues to 

believe that a worker’s initiative, such 

as managerial skill or business acumen 

or judgment, is an appropriate measure 

of a worker’s opportunity to earn profits 

or incur losses. See, e.g., Karlson, 860 

F.3d at 1094–95 (discussing how the 

worker’s decisions and choices 

regarding assignments and customers 

affected his profits); Saleem, 854 F.3d at 

145 (noting in support of independent 

contractor status that the degree to 

which the worker’s relationship with 

the potential employer ‘‘yielded returns 

was a function . . . of the business 

acumen of each [worker]’’); McFeeley, 

825 F.3d at 243 (‘‘The more the worker’s 

earnings depend on his own managerial 

capacity rather than the company’s . . . 

the less the worker is economically 

dependent on the business and the more 

he is in business for himself and hence 

an independent contractor.’’) (internal 

quotation marks omitted); Express SixtyMinutes Delivery, 161 F.3d at 304 

(agreeing with district court that 

‘‘driver’s profit or loss is determined 

largely on his or her skill, initiative, 

ability to cut costs, and understanding 

of the courier business’’); WHD Opinion 

Letter FLSA2019–6 at 6 (‘‘These 

opportunities typically exist where the 

worker receives additional 

compensation based, not [merely] on 

greater efficiency, but on the exercise of 

initiative, judgment, or foresight.’’). 

Commenters did not seriously dispute 

the relevance of initiative to a worker’s 

opportunity for profit or loss. In 

response to the comment by Senator 

Sherrod Brown and 22 other senators, 

the Department agrees that a worker is 

not necessarily an independent 

contractor because he or she can use 

initiative to affect his or her opportunity 

for profit or loss but maintains that yet 

initiative is indicative of—or weighs 

towards—independent contractor status 

in the multifactor analysis. And the 

Department agrees that a worker’s 

ability to cut costs, including by passing 

them along to customers, is relevant to 

determining initiative. See Express 

Sixty-Minutes Delivery, 161 F.3d at 304. 

Finally, the Department agrees with 

Seyfarth Shaw that a worker’s business 

acumen can ‘‘cover acumen relevant to 

the wide range of business endeavors in 

the U.S. economy’’—initiative is not 

limited to or automatically present in 

any particular type of job. 

Regarding the last sentence of the 

proposed opportunity factor regulatory 

text (‘‘This factor weighs towards the 

individual being an employee to the 

extent the individual is unable to affect 

his or her earnings or is only able to do 

so by working more hours or more 

efficiently.’’), WFCA expressed the 

concern that the sentence means that a 

worker who starts his or her own 

business and seeks to develop 

efficiencies in so doing will be an 

employee under the analysis. WFCA 

suggested that the sentence be deleted. 

WPI also asked that the last sentence be 

deleted because ‘‘[a]n individual who 

uses initiative, skill or judgment to 

perform a job more efficiently can 

generate greater profits, even if 

compensated by the hour or piece rate.’’ 

It asserted: ‘‘The ability to use 

managerial skill, expertise, market 

experience, or business acumen to 

perform work more efficiently is 

indicative of independent contractor 

status.’’ The Department agrees that 

such use of initiative can indicate 

independent contractor status when it 

affects opportunity for profit or loss. 

The word ‘‘efficiently’’ was used in 

proposed § 795.105(d)(2)(ii) to mean 

working faster to perform rote tasks 

more quickly. See 85 FR 60614 n.38 

(identifying piece-rate workers as ‘‘an 

example of workers who are able to 

affect their earnings only through 

working more hours or more 

efficiently.’’). Higher earnings that result 

solely from this ‘‘working faster’’ 

concept of efficiency do not by 

themselves indicate independent 

contractor status. However, as WFCA 

and WPI note, efficiency may also mean 

effective management based on business 

acumen, which is indicative of being in 

business for oneself if it results in 

increased earnings. For instance, the 

Fifth Circuit found that the opportunity 

factor ‘‘points towards independent 

contractor status’’ where ‘‘a driver’s 

profit or loss is determined largely on 

his or her skill, initiative, ability to cut 

costs, and understanding of the courier 

business,’’ observing that ‘‘drivers who 

made the most money appeared to be 

the most experienced and most 

concerned with efficiency, while the 

less successful drivers tended to be 

inexperienced and less concerned with 

efficiency.’’ Express Sixty-Minutes 

Delivery Serv. 161 F.3d at 304. To avoid 

confusion between multiple potential 

meanings of ‘‘more efficiently,’’ the 

Department is revising 

§ 795.105(d)(2)(ii) to replace that term 

with ‘‘faster.’’ Relatedly, ATA and other 

transportation commenters objected to 

the Department’s statements in the 

NPRM preamble that ‘‘[w]orkers who 

are paid on a piece-rate basis are an 

example of workers who . . . lack 

meaningful opportunity for profit or 

loss.’’ They asserted that the statements 

may result in some judges refraining 

from engaging in the actual analysis set 

forth in the rule as to opportunity for 

profit or loss. They further asserted that 

truck drivers paid on a piece-rate basis 

may be independent contractors based 

on their management decisions or 

ability to cut costs. The Department’s 

statements in the NPRM preamble 

regarding workers paid on a piece-rate 

basis were general observations 

supported by case law 33 and not a 

categorical rule or the complete 

analysis. The fact that a worker is paid 

on a piece-rate basis set by the potential 

employer does not indicate an 

opportunity for profit or loss, but 

whether that worker has an opportunity 

for profit or loss indicative of 

independent contractor status is 

determined by a fuller analysis of the 

worker’s circumstances. 

Some commenters requested 

additional examples that are indicative 


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1190 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

34The U.S. Chamber of Commerce’s suggested 

examples were: ‘‘(1) The worker’s own decisionmaking with respect to the details and means by 

which they make use of, secure, and pay helpers, 

substitutes, and related labor or specialties . . . (2) 

The worker’s own decision-making with respect to 

the details and means by which they purchase, rent, 

or otherwise obtain and use tools . . . ; (3) The 

worker’s own decision-making with respect to the 

details and means by which they purchase or 

otherwise obtain and use supplies . . . ; (4) The 

worker’s own decision-making with respect to the 

details and means by which they purchase, rent, or 

otherwise obtain and use equipment . . . ; (5) The 

worker’s initiative and decisions they implement in 

connection with their own performance of services 

through higher service fees, incentives, charges, and 

other ways; (6) The worker’s initiative to invest in 

the development of skills, competencies, and trades 

. . . ; (7) The worker’s expertise in delivery of 

services/products that result in enhanced profits, 

for example through tips and other incentives as a 

result of providing quality customer service; (8) The 

worker’s losses incurred as a result of customer 

complaints or other charges where the worker’s 

results were below customer or contractual 

expectations and obligations; (9) The worker’s 

flexibility to choose amongst work opportunities 

offered that impact profits and losses; (10) The 

worker’s contractual or other losses if they do not 

provide the accepted services or the worker 

provides substandard services, and are engaged to 

provide time-sensitive, often perishable services 

and products; and (11) The worker’s avoidance of 

liquidated damages charges or indemnification 

obligations in the parties’ agreement relating to 

various provisions, including material breaches of 

the parties’ agreement.’’ 

35These suggested examples were: ‘‘(1) The 

business pays the worker by the hour where it is 

customary in the particular business/trade to do so 

(e.g., attorneys, physical trainers); (2) The business 

sets the price of goods and services offered by a 

worker to customers where the worker controls the 

amount of time, date and place they provide the 

services as well as the amount of services they 

choose to provide and the price is set to facilitate 

the time sensitive transaction as a result of the time 

sensitive or perishable nature of the service the 

customer desires[;] and (3) The business’s 

facilitation of payments from the customer to the 

worker.’’ 

36SHRM’s suggested examples were: ‘‘[t]he 

worker’s decisions in choosing amongst 

opportunities offered that impact profit and loss; 

[t]he worker’s losses suffered from receipt of 

customer complaints where the worker’s results 

were below customer or contractual expectations; 

[t]he worker’s decisions in avoiding liquidated 

damages charges or indemnification obligations in 

the parties’ agreement; [t]he worker’s own decisionmaking on whether to use other workers or services 

as helpers or substitutes as well as the use of related 

labor or specialties to assist in either the services 

provided, the tools and equipment used, or the 

maintenance of the worker’s business structure; 

[t]he worker’s acumen regarding the delivery of 

services/products that result in enhanced profits 

through tips and other incentives; [t]he worker’s 

decision-making regarding the details and means by 

which they obtain supplies, tools, and equipment 

for use in their business, including choices 

regarding from whom to purchase these goods, how 

much of the goods are obtained at any one time, the 

quality of the goods, and the negotiated prices 

regarding said goods; and [t]he worker’s decisionmaking regarding investment in skills they deem 

necessary to achieve the desired results from their 

work, including education, certificates, or classes.’’ 

37Seyfarth Shaw’s suggested examples were 

‘‘[t]he worker’s own decision-making regarding the 

use of helpers, substitutes, and related labor or 

specialties to assist in the services provided, the 

tools and equipment used, or the maintenance of 

the worker’s business structure . . . to the extent 

those decisions impact the worker’s costs and 

overall profitability; [t]he worker’s initiative and the 

decisions they implement in connection with the 

performance of services and/or capital expenditures 

on equipment, supplies, and tools . . . ; [t]he 

worker’s initiative to invest in the development of 

skills, competencies, and trades (including 

education, training, licenses, certifications, and 

classes) . . . ; [t]he worker’s expertise in delivery 

of services/products that result in enhanced profits 

through tips and other incentives as a result of great 

customer service and exceptional skills, for 

example[; t]he worker’s losses incurred as a result 

of customer complaint or other charges where the 

worker’s results were below customer or contractual 

expectations and obligations; and [t]he worker’s 

avoidance of liquidated damages charges or 

indemnification obligations in the parties’ 

agreement relating to various provisions, including 

material breaches of the parties’ agreement.’’ 

of an opportunity for profit or loss 

(many of the suggested examples 

overlapped with each other). TechNet 

asked for ‘‘concrete examples’’ and 

suggested the following: ‘‘[d]rivers who 

can set their own hours, choose which 

jobs to accept or reject, and use their 

judgment in how to best complete jobs,’’ 

as well as ‘‘[a]pp-based opportunities— 

including opportunities to provide 

personal transportation, parcel 

deliveries, shopping services, or food 

delivery, among other types of service.’’ 

The U.S. Chamber of Commerce offered 

eleven ‘‘additional examples of a 

worker’s initiative or investment that 

may impact a worker’s profit or loss.’’ 34

The U.S. Chamber of Commerce also 

suggested ‘‘examples of fact situations 

which are neutral in the analysis of 

whether the worker controls their 

profits and losses.’’ 35 SHRM requested 

numerous ‘‘additional examples of 

worker investment and initiative that 

impact profit and loss.’’ 36 SHRM also 

requested that the final rule make ‘‘the 

following explicit statements regarding 

facts that do not support a finding of 

dependency: [w]orkers may experience 

financial losses as a result of 

cancellations of their service or the 

provision of service that does not meet 

customer expectations when the worker 

has flexibility to choose between work 

opportunities; and [e]ven if the business 

sets the price of goods provided by the 

worker, that does not negate the 

worker’s initiative when the worker 

controls the amount of time, when, and 

where they provide the services as well 

as the amount of the same service they 

chose to provide.’’ Seyfarth Shaw asked 

the Department to ‘‘expand upon the 

examples of ways that workers impact 

their own profitability as well as their 

losses (by impacting their profits and 

their costs)’’ and to include numerous 

examples.37 And Mr. Reibstein 

commented that ‘‘[e]xamples of loss 

should be identified . . . so it is clear 

[that this factor] does not focus only on 

profit.’’ He offered the following 

examples: ‘‘He or she has to re-do work 

that is not consistent with industry 

standards or does not meet a customer’s 

expectations; is potentially liable to the 

potential employer in the event his or 

her actions or inactions cause harm or 

legal expense to the potential employer; 

or fails to render services in a costefficient manner by not managing 

expenses or investing far too much time 

on activities that are unproductive.’’ 

The Department has considered the 

various requests for additional examples 

of initiative and investment that can 

indicate a worker’s opportunity for 

profit or loss, but declines to change to 

the proposed regulatory text. The 

regulatory text already broadly describes 

initiative as including managerial skill 

and business acumen or judgment, and 

explains that investment is the worker’s 

management of his or her investment in 

or capital expenditure on, for example, 

helpers or equipment or material to 

further his or her work. Many of the 

suggested examples seem to fall into one 

of these categories, and some of them 

effectively repeat concepts already 

identified in the regulatory text— 

especially the ones involving helpers, 

tools, supplies, and equipment. The 

Department does not believe that (even 

after culling out all of the overlap) 

additional examples of initiative and 

investment would benefit employers or 

workers. It is not possible or productive 

to seek to identify in the regulatory text 

every example of initiative and 

investment that may be relevant to the 

opportunity for profit or loss analysis. 

The Department purposefully described 

both initiative and investment in a 

broad and general manner to provide 

helpful guidance to as many employers 

and workers as possible. The 

Department believes that this approach, 

along with the further clarification 

provided throughout this preamble 

section as well as the examples added 

in § 795.115, will be more helpful and 

functional for employers and workers as 

they apply the analysis. 

3. The ‘‘Skill Required’’ Factor 

In the NPRM, the Department 

identified three other factors that may 

serve as ‘‘additional guideposts’’ in the 

analysis to determine whether a worker 

is an employee or independent 

contractor. The first of these other 

factors, included at proposed 

§ 795.105(d)(2)(i), is the amount of skill 

required for the work. 85 FR 60639. The 

Department’s proposed regulatory text 

stated that this factor would weigh in 

favor of the individual being an 

independent contractor to the extent the 

work at issue requires specialized 

training or skill that the potential 


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employer does not provide; conversely, 

the factor would weigh in favor of the 

individual being an employee to the 

extent the work at issue requires no 

specialized training or skill and/or the 

individual is dependent upon the 

potential employer to equip him or her 

with any skills or training necessary to 

perform the job. As explained in the 

NPRM, the Department proposed to 

clarify that this factor should focus on 

the amount of skill required because 

importing aspects of the control factor 

into the skill factor has diluted the 

consideration of actual skill to the point 

of near irrelevance, and such dilution 

generates confusion regarding the 

relevance and weight of the worker’s 

skill in evaluating economic 

dependence. 

Employer representatives were 

generally supportive of the 

Department’s clarification and 

relegation of this factor as an 

‘‘additional guidepost’’ but provided 

additional commentary and requests for 

modification. Several commenters 

suggested that this factor be eliminated 

entirely. The National Restaurant 

Association commented that this factor 

‘‘does not add much clarity to the 

analysis’’ and ‘‘unnecessarily 

discriminates against individuals who 

operate businesses that do not require 

advanced degrees.’’ WPI stated that 

‘‘[s]o narrowed, this factor has little 

probative value in determining 

economic dependence and should be 

eliminated as a separate factor.’’ 

Other commenters suggested that the 

factor be included within the core, 

‘‘profit and loss’’ factor or otherwise 

minimized. CWI suggested that the 

factor be incorporated into the profit 

and loss factor because ‘‘[w]here 

specialized skills are required to 

perform work, workers unquestionably 

have taken the initiative to invest time 

and money into developing those 

skills.’’ SHRM and U.S. Chamber of 

Commerce agreed that this factor should 

not be a stand-alone factor, but rather 

should be incorporated into the 

opportunity factor, to ensure that 

workers who desire the flexibility and 

freedom of independent contractor 

status—but who provide services that 

may not require specialized training— 

are not negatively impacted. See also 

WFCA (requesting that lack of skill 

should not weigh in favor of the worker 

being an employee). Commenters also 

stated that this additional factor should 

be minimized further in the analysis, 

commenting that the factor places too 

much emphasis on the importance of 

skill, and requested that ‘‘the final rule 

should at least indicate that this may be 

a relevant factor in some but not all 

instances.’’ Reibstein. 

After considering these comments, the 

Department declines both the request to 

eliminate this factor from consideration 

entirely and the request to include it as 

part of the opportunity factor. The 

Department agrees with commenters 

that the concepts of initiative and 

judgment are sufficiently analyzed in 

multiple ways under the control and 

opportunity core factors, but believes 

that longstanding case law militates in 

favor of considering this additional 

factor—skill required—when relevant 

under the particular circumstances of 

each situation. As explained in the 

NPRM, the Supreme Court articulated 

the factor as ‘‘skill required’’ in Silk, 331 

U.S. at 716, and multiple courts of 

appeals continue to consider as ‘‘the 

degree of skill required to perform the 

work.’’ Paragon Contractors, 884 F.3d at 

1235; see also Iontchev, 685 F. App’x at 

550; Keller, 781 F.3d at 807. The 

Department believes that sharpening 

this factor to focus solely on skill 

clarifies the analysis. Moreover, 

analyzing the worker’s ability to 

exercise initiative under the control 

factor, a core factor that is given more 

weight than the skill factor, 

appropriately reflects that that the 

presence or absence of initiative is 

usually more important than the 

presence or absence of skill. Similarly, 

the effect of the worker’s initiative is 

analyzed under the opportunity factor, 

another core factor that, for the reasons 

explained above, is usually more 

probative than the skill factor. 

Commenters such as the National 

Restaurant Association and NRF 

suggested that the regulation should 

focus not on whether the skill required 

is specialized, but rather the extent to 

which a worker relies on the potential 

employer for training needed to perform 

the work. The Wood Flooring Covering 

Association, however, stated that the 

regulation as proposed may create 

unintended limits on training and 

employers should not be discouraged 

from funding needed training for 

workers, particularly in view of its 

industry’s labor shortage. With respect 

to these requests, the Department 

declines to eliminate the modifier 

‘‘specialized’’ from the regulation. This 

type of consideration is supported by 

discussions of this factor in case law. 

See, e.g., Simpkins v. DuPage Hous. 

Auth., 893 F.3d 962, 966 (7th Cir. 2018) 

(‘‘whether Simpkins had specialized 

skills, as well as the extent to which he 

employed them in performing his work, 

are [material] issues’’); Carrell v. 

Sunland Const., Inc., 998 F.2d 330, 333 

(5th Cir. 1993) (finding it relevant that 

‘‘[p]ipe welding, unlike other types of 

welding, requires specialized skills’’). 

The Department also declines to adjust 

the regulatory text to directly address 

who provides the training because such 

facts are not necessarily probative in 

every circumstance; the Department 

notes, however, that it can be suggests 

employee status if a worker receives all 

specialized skills from the employer. 

See, e.g., Keller, 781 F.3d at 809 

(explaining that if ‘‘the company 

provides all workers with the skills 

necessary to perform the job,’’ that 

suggests employee status); Scantland, 

721 F.3d at 1318; Hughes v. Family Life 

Care Inc., 117 F. Supp. 3d 1365, 1372 

(N.D. Fla. 2015) (‘‘The relevant inquiry 

[for the skill factor] is whether [the 

worker] is dependent upon [the 

company] to equip her with the skills 

necessary to perform her job.’’). This is 

because an individual who is in 

business for him- or herself typically 

brings his or her own skills to the job, 

rather than relying on the client to 

provide training. 

While the WFCA generally supports 

this factor, it also requested that the 

Department include examples of 

specialized training or skill that focused 

on indicators such as certifications and 

licensing. Scopelitis, Garvin, Light, 

Hanson & Feary, a law firm commenting 

on behalf of several unnamed 

transportation providers, agreed that 

credentials such as testing to earn a 

Commercial Driver’s License can 

demonstrate specialized skill, but also 

noted that skills needed to successfully 

operate a business should also be 

considered specialized skills to help 

distinguish independent contractors 

from employees. The Department notes 

that the opportunity factor already 

considers whether workers have an 

opportunity for profit or loss based on 

their business acumen or managerial 

expertise. It would be redundant to 

analyze ‘‘skills needed to successfully 

operate a business’’ as part of the skill 

factor. As to requests for examples or 

additional clarification as to what 

constitutes ‘‘specialized’’ skills, the 

Department agrees that credentials such 

as certifications and licenses can be 

helpful indicators of specialized skill, 

though they are by no means the only 

indicators of such skill. The Department 

does not believe any change to the 

regulatory text to clarify this point is 

warranted, however. 

Employee representatives such as the 

AFL–CIO expressed concern that deemphasizing the skill factor would 

‘‘place considerable competitive 

pressure on law-abiding employers 

employing employees at the bottom of 

the wage scale, thus undermining the 


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38 In addition, as also noted in the NPRM, the 

opportunity factor considers whether a worker’s 

decisions to work for others affects profits or losses. 

See, e.g., Freund, 185 F. App’x at 783 (affirming the 

district court’s finding that the ‘‘looseness of the 

relationship between Hi–Tech and Freund 

permitted him great ability to profit,’’ in part, 

because ‘‘Freund could have accepted installation 

jobs from other companies.’’). The Department does 

not believe this consideration overlaps with the 

control factor. While the control factor concerns the 

ability to work for others, the opportunity factor 

concerns the effects of doing so. 

national minimum wage standard.’’ The 

AFL–CIO further asserted that the 

proposed regulation would make it 

more likely that unskilled workers such 

as home care workers, delivery drivers, 

and janitors will be classified as 

independent contractors, and thus such 

workers will be unprotected by the 

FLSA’s minimum wage and overtime 

pay standards. See AFL–CIO. The 

National Employment Lawyers 

Association (NELA) commented that the 

Department’s proposed regulation 

‘‘seeks to constrict and demote’’ the skill 

factor, and, relying on case law, noted 

that ‘‘courts typically assess whether 

workers are required to use specialized 

skills, beyond those typically acquired 

through occupational or technical 

training, in an independent way to 

perform their job’’ but that this factor, 

‘‘which often favors employee status, 

does not suit the Department’s 

purposes.’’ 

Regarding farmworkers specifically, 

TRLA stated that whether the services 

rendered by an employee require special 

skills has often been probative in the 

farm labor context, and that by largely 

eliminating consideration of this factor, 

the proposed rule makes the proper 

classification of farmworkers harder to 

determine. See Texas Rio Grande Legal 

Aid. This ‘‘will lead to more 

farmworkers being classified as 

independent contractors, thereby 

denying the protections of the FLSA to 

one of the most vulnerable classes of 

workers’’; moreover, ‘‘[t]o the extent that 

the proposed rule purports to be 

descriptive of the current state of the 

law, it is flatly inaccurate.’’ 

The Department has considered these 

comments but continues to believe that 

its proposal with respect to this factor 

is logical and helpful. Although many 

courts consider the skill factor, courts 

appear to find the core factors to be 

more dispositive than the skill factor 

when such factors conflict. See 85 FR 

60621–22 (listing cases). Continuing to 

take it into account, but not as one of 

the core factors, adds clarity to the 

economic realities test. The 

Department’s formulation of the test 

does not preclude the possibility that in 

some circumstances, such as with 

respect to farmworkers, that this factor 

could be particularly probative. 

The Department adopts 

§ 795.105(d)(2)(i) as proposed. 

4. The ‘‘Permanence of the Working 

Relationship’’ Factor 

The second additional guidepost 

factor, described in the regulatory text at 

§ 795.105(d)(2)(ii), is the degree of 

permanence of the working relationship 

between the individual and the 

potential employer. The Department 

proposed that this factor would weigh 

in favor of the individual being an 

independent contractor to the extent the 

work relationship is by design definite 

in duration or sporadic, which may 

include regularly occurring fixed 

periods of work, although the seasonal 

nature of work by itself would not 

necessarily indicate independent 

contractor classification. In particular, 

the Department explained that the 

seasonal nature of work would not 

indicate independent contractor status 

where the worker’s position is 

permanent for the duration of the 

relevant season and where the worker 

has done the same work for multiple 

seasons. See Paragon Contractors, 884 

F.3d at 1236–37. The proposal also 

provided that this factor would weigh in 

favor of the individual being an 

employee to the extent the work 

relationship is instead by design 

indefinite in duration or continuous. As 

noted in the NPRM, courts and the 

Department routinely consider this 

factor when applying the economic 

reality analysis under the FLSA to 

determine employee or independent 

contractor status. See, e.g., WHD 

Opinion Letter FLSA2019–6 at 4; Razak, 

951 F.3d at 142; Hobbs, 946 F.3d at 829; 

Karlson, 860 F.3d at 1092–93; McFeeley, 

825 F.3d at 241; Keller, 781 F.3d at 807; 

Scantland, 721 F.3d at 1312. 

Multiple commenters urged the 

Department to focus this factor further 

on the indefiniteness of a working 

relationship. For example, the U.S. 

Chamber of Commerce commented that 

independent contractors often enter into 

multiple, long-term contracts with the 

same business. It suggested that the 

Department clarify that such contracts 

do not indicate employee status merely 

because of their length, but that only 

contracts of an indefinite length would 

be indicative of employee status. CWI 

similarly requested that this factor focus 

only on the length of the relationship as 

reflected in contractual agreements, 

regardless of how long the relationship 

is in reality. 

The Department considered adding 

clarifying language to the regulation 

indicating that a relationship whose 

length is indefinite is more indicative of 

employee status than a relationship that 

is merely long. However, because the 

focus of the economic realities test is 

not on technical formalities, it may be 

that a long relationship could be 

evidence of permanence despite a 

contract with a definite end. For 

example, an employer may have a 

permanent relationship with an 

employee despite requiring the 

employee to enter into annual 

employment contracts. Or a potential 

employer may have a long-term 

relationship reflected in several shortterm contracts. The Department has 

therefore retained the proposed 

regulatory text because, although 

indefiniteness is a stronger indicator of 

permanence, the length of a working 

relationship is still relevant to this 

factor. 

One commenter urged the Department 

to consider the exclusivity of a 

relationship as part of the permanence 

factor, an approach taken by some 

courts. Specifically, CPIE commented 

that permanence does not indicate an 

employment relationship unless it is 

due to the potential employer’s 

requirement of exclusivity rather than 

the worker’s choice. The Department 

agrees that exclusivity most strongly 

indicates an employment relationship 

when the exclusivity is required by the 

potential employer. However, as the 

Department discussed in the NPRM, an 

exclusivity requirement more strongly 

relates to the control exercised over the 

worker than the permanence of the 

relationship. As explained in the 

discussion of the control factor, that 

factor already considers whether a 

worker has freedom to pursue external 

opportunities by working for others, 

including a potential employer’s rivals. 

See, e.g., Freund, 185 F. App’x at 783 

(affirming district court’s finding that 

‘‘Hi–Tech exerted very little control 

over Mr. Freund,’’ in part, because 

‘‘Freund was free to perform 

installations for other companies’’).38

The same concept of exclusivity is then 

re-analyzed as part of the permanence 

factor. Compare id. (‘‘Freund’s 

relationship with Hi–Tech was not one 

with a significant degree of permanence 

. . . [because] Freund was able to take 

jobs from other installation brokers.’’), 

with Scantland, 721 F.3d at 1319 

(finding installation technicians’ 

relationships with the potential 

employer were permanent because they 

‘‘could not work for other companies’’). 

Such duplicative analysis of exclusivity 

under the permanence factor, however, 

is not supported by the Supreme Court’s 

original articulation of that factor in 

Silk. See 331 U.S. at 716 (analyzing the 


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39See Merriam-Webster Dictionary, https://

www.merriam-webster.com/dictionary/permanent 

(defining permanent as ‘‘continuing or enduring 

without fundamental or marked change’’); see also 

Oxford American Dictionary 1980 (defining 

permanent as ‘‘lasting or meant to last 

indefinitely’’); Merriam-Webster Pocket Dictionary 

1947 (defining permanent as ‘‘Lasting; enduring’’). 

‘‘regularity’’ of unloaders’ work); id. at 

719 (analyzing truck drivers’ ability to 

work ‘‘for any customer’’ as an aspect of 

‘‘the control exercised’’ but not 

permanence); see also 12 FR 7967 

(describing the permanence factor as 

pertaining to ‘‘continuity of the 

relation’’ but with no reference to 

exclusivity). Nor is the concept of 

exclusivity part of the common 

understanding of the word 

‘‘permanent.’’ 39 In a similar vein to the 

Department’s analysis of the concept of 

initiative, the Department believes 

analysis of exclusivity as part of the 

permanence factor dilutes the 

significance of actual permanence 

within that factor, blurs the lines 

between the economic reality factors, 

and creates confusion by incorporating 

a concept that is distinct from 

permanence. 

Because the worker’s ability to work 

for others is already analyzed as part of 

the control factor, proposed 

§ 795.105(d)(2)(ii) articulated the 

permanence factor without referencing 

the exclusivity of the relationship 

between the worker and potential 

employer, and the Department retains 

the same language in the final rule. 

Commenters also requested that the 

Department clarify that long-term 

relationships that are based on the 

workers’ choice to continue working for 

the same business rather than the 

potential employer’s requirements 

should not indicate employee status 

under this factor. NRF commented that 

an independent contractor may choose 

to focus on a particular client for 

reasons of the contractor’s own rather 

than the client’s requirements, 

suggesting that the worker’s choice does 

not indicate employee status. The 

Department does not believe that further 

explanation in the regulatory text is 

necessary, though it agrees that a longterm relationship may not always 

indicate an employee relationship. This 

factor is not always probative to the 

analysis, and the scenarios described by 

the commenters may be situations 

where the length of the relationship is 

not a useful indicator. However, 

explicitly stating that a relationship is 

not permanent whenever the worker 

chooses for it to be long-term is not 

accurate. After all, every employee to 

some extent chooses whether to 

continue working for their employer, 

and the FLSA’s definition of ‘‘employ’’ 

includes to passively ‘‘suffer or permit 

to work.’’ 29 U.S.C. 203(g). A long-term 

relationship is always the result of 

choices by both the potential employer 

and the worker, but it is sometimes a 

helpful indicator of employee status. 

Edward Tuddenham urged the 

Department to give examples 

relationships that may or may not be 

viewed as permanent, such as a contract 

that is repeatedly renewed or an 

industry that is generally itinerant. 

Although the Department has added one 

example regarding this factor to new 

§ 795.115 to help illustrate how the 

factor is to be considered, the 

Department does not believe it is 

possible to address all of the possible 

working relationships and contractual 

arrangements in a useful fashion. 

Certain general principles should 

inform any analysis of work 

relationships. The Department reiterates 

that it is not contractual formalities that 

are relevant to the inquiry, but 

economic reality. A potential 

employer’s attempts to use contractual 

technicalities to label a relationship as 

temporary even though it is indefinite in 

reality should not affect whether this 

factor indicates employee or 

independent contractor status. Again, 

this factor will not always be probative, 

and, for example, in certain industries 

where employees are often employed for 

short periods, a short term of 

employment would not indicate 

independent contractor status. 

SWCCA pointed out that a recent 

WHD opinion letter included language 

stating that ‘‘the existence of a long-term 

working relationship may indirectly 

indicate permanence.’’ WHD Opinion 

Letter FLSA 2019–06 (April 29, 2019). 

The Alliance requested that this 

language be added to § 795.105(d)(2)(ii). 

Though the quoted language and the 

case law from which it is drawn remain 

useful guidance for employers, the 

Department does not believe it is 

necessary to add this language to the 

regulation, which already indicates that 

a long-term relationship points toward 

an employment relationship. 

Accordingly, the Department finalizes 

§ 795.105(d)(2)(ii) as proposed. 

5. The ‘‘Integrated Unit’’ Factor 

The final additional guidepost factor, 

described in § 795.105(d)(2)(iii), is 

whether the work is part of an 

integrated unit of production. The 

Department proposed that this factor 

would weigh in favor of the individual 

being an employee to the extent his or 

her work is a component of the potential 

employer’s integrated production 

process for a good or service. The 

proposed regulatory text further 

explained that this factor would weigh 

in favor of an individual being an 

independent contractor to the extent his 

or her work is segregable from the 

potential employer’s production 

process. The Department proposed to 

clarify that this factor is different from 

the concept of the importance or 

centrality of the individual’s work to the 

potential employer’s business. 

As noted in the NPRM, the 

Department and courts outside of the 

Fifth Circuit have typically articulated 

the sixth factor of the economic reality 

test as ‘‘the extent to which services 

rendered are an integral part of the 

[potential employer’s] business.’’ WHD 

Fact Sheet #13. Under this articulation, 

the ‘‘integral part’’ factor considers ‘‘the 

importance of the services rendered to 

the company’s business.’’ McFeeley, 825 

F.3d at 244. In line with this thinking, 

courts generally state that this factor 

favors employee status if the work 

performed is so important that it is 

central to or at ‘‘[t]he heart of [the 

potential employer’s] business.’’ Werner 

v. Bell Family Med. Ctr., Inc., 529 F. 

App’x 541, 545 (6th Cir. 2013); see also 

Baker, 137 F.3d at 1443 (‘‘[R]ig welders’ 

work is an important, and indeed 

integral, component of oil and gas 

pipeline construction work.’’); 

Lauritzen, 835 F.2d at 1537–38 

(‘‘[P]icking the pickles is a necessary 

and integral part of the pickle 

business[.]’’); DialAmerica, 757 F.2d at 

1385 (‘‘[W]orkers are more likely to be 

‘employees’ under the FLSA if they 

perform the primary work of the alleged 

employer.’’). 

The Department explained in the 

NPRM that it is concerned that this 

focus on importance or centrality 

departs from the Supreme Court’s 

original articulation of the economic 

reality test, has limited probative value 

regarding the ultimate question of 

economic dependence, and may be 

misleading in some instances. As such, 

the Department proposed that 

§ 795.105(d)(2)(iii) would clarify that 

the ‘‘integral part’’ factor should instead 

consider ‘‘whether the work is part of an 

integrated unit of production,’’ which 

aligns with the Supreme Court’s 

analysis in Rutherford Food, 331 U.S. at 

729. 

Many commenters representing 

workers urged the Department to retain 

the ‘‘integral part’’ factor used by courts 

as part of the economic realities test, 

rather than replacing it with the 

‘‘integrated unit’’ factor articulated in 

the proposed rule. This ‘‘integral part’’ 

factor would consider the importance or 

centrality of the work performed to the 

purported employer’s business. In 


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40A 2002 opinion letter interpreted the factor to 

focus on the importance of the work, explaining 

that ‘‘[w]hen workers play a crucial role in a 

company’s operation, they are more likely to be 

employees than independent contractors.’’ WHD 

Opinion Letter, 2002 WL 32406602, at *3 (Sept. 5, 

2002). However, the Department’s most recent 

opinion letter on this subject characterized the 

factor as ‘‘the extent of the integration of the 

worker’s services into the potential employer’s 

business.’’ WHD Opinion Letter FLSA2019–6 at 6 

(emphasis added). 

41The only appellate case the Department found 

of misalignment in this scenario is Paragon 

Contractors, 884 F.3d at 1237–38. 

42As explained elsewhere, the Fifth Circuit does 

not usually consider the ‘‘integral part’’ factor in its 

analysis. 

particular, several commenters, 

including United Food and Commercial 

Workers, Senator Patty Murray, and the 

State AGs contended that removing the 

‘‘integral’’ factor would be contrary to 

established circuit court precedent. The 

UFCW asserted that ‘‘[w]hether a 

worker’s service is an integral part of the 

company’s business may not be a 

relevant factor in all situations, but it 

may be in some and some courts have 

found value in analyzing this fact.’’ It 

commented that if the Department 

stated that integrality is not relevant to 

the economic realities test, the 

Department’s proposed rule would 

unduly limit the inquiry. One 

commenter, the Greenlining Institute, 

commented that eliminating an 

‘‘integral part’’ factor disfavors workers 

‘‘performing physical tasks instead of 

stereotypically ‘intellectual’ pursuits,’’ 

who are disproportionately racial or 

ethnic minorities. 

Many commenters agreed with the 

Department’s proposal to eliminate the 

‘‘integral part’’ factor or any similar 

factor focused on the importance of the 

work. The U.S. Chamber of Commerce, 

for example, commented, ‘‘In today’s 

economy, independent workers provide 

services in all aspects of the economy 

and all aspects of individual businesses, 

including core and non-core functions, 

as well as in the same or different lines 

of business.’’ The Society for Human 

Resource Management similarly 

commented that the ‘‘analysis 

concerning the ‘integrated unit’ factor 

should not focus on the ‘importance of 

services’ provided.’’ 

Though circuit courts have applied an 

‘‘integral part’’ factor, it was not one of 

the factors analyzed by the Supreme 

Court in Rutherford Food. Rather, the 

Court considered whether the worker 

was part of an ‘‘integrated unit of 

production,’’ 331 U.S. at 729, as this 

final rule does. The Department believes 

that circuit courts—and even the 

Department itself—have deviated from 

the Supreme Court’s guidance and, in 

doing so, have introduced an ‘‘integral 

part’’ factor that can be misleading. As 

explained in the NPRM, the ‘‘integral 

part’’ factor was not one of the distinct 

factors identified in Silk as being 

‘‘important for decision.’’ 331 U.S. at 

716. The ‘‘integrated unit’’ factor instead 

derives from Rutherford Food, where 

the Supreme Court observed that the 

work at issue was ‘‘part of an integrated 

unit of production’’ in the potential 

employer’s business and concluded that 

workers were employees in part because 

they ‘‘work[ed] alongside admitted 

employees of the plant operator at their 

tasks.’’ 331 U.S. at 729. As the NPRM 

explained, the Department began using 

the ‘‘integral part’’ factor in 

subregulatory guidance in the 1950s. 

See WHD Opinion Letter (Aug. 13, 

1954); WHD Opinion Letter (Feb. 8, 

1956).40 And circuit courts in the 1980s 

began referring to it as the ‘‘integral 

part’’ factor and analyzing it in terms of 

the ‘‘importance’’ of the work to the 

potential employer. See, e.g., Lauritzen, 

835 F.2d 1529, 1534–35; DialAmerica 

Mktg., 757 F.2d at 1386. 

The NPRM explained the reasons that 

the Department now believes the 

Supreme Court’s original ‘‘integrated 

unit’’ formulation is more probative 

than the ‘‘integral part’’ (meaning 

‘‘important’’) approach. As Judge 

Easterbrook pointed out in his 

concurrence in Lauritzen, ‘‘[e]verything 

the employer does is ‘integral’ to its 

business—why else do it?’’ Lauritzen, 

835 F.2d at 1541 (Easterbrook J., 

concurring); see also Zheng, 355 F.3d at 

73 (cautioning in the joint employer 

context that interpreting the factor to 

focus on importance ‘‘could be said to 

be implicated in every subcontracting 

relationship, because all subcontractors 

perform a function that a general 

contractor deems ‘integral’ to a product 

or a service’’). 

The Department’s review of appellate 

cases since 1975 involving independent 

contractor disputes under the FLSA 

supports this criticism. The Department 

generally found that, in cases where the 

‘‘integral part’’ factor was addressed, the 

factor aligned with the ultimate 

classification when the ultimate 

classification was employee.41 However, 

courts’ analyses of the ‘‘integral part’’ 

factor—again, if it was analyzed at 

all 42—were misaligned more frequently 

than they were aligned with the 

ultimate classification when the 

ultimate classification was independent 

contractor status. Compare Iontchev, 

685 F. App’x at 551; Meyer, 607 F. 

App’x at 123; Freund, 185 F. App’x at 

784–85; Mid-Atl. Installation, 16 F. 

App’x at 107–08; Brandel, 736 F.2d at 

1120, with Werner, 529 F. App’x at 545– 

46; DialAmerica Mktg., 757 F.2d at 

1387. This higher rate of misalignment 

is precisely what Judge Easterbrook’s 

criticism would have predicted: If 

‘‘[e]verything the employer does is 

‘integral,’ ’’ that factor would point 

towards employee status for workers 

who are employees, but also for workers 

who are independent contractors. 

The NPRM further explained that ‘‘the 

relative importance of the worker’s task 

to the business of the potential 

employer says nothing about whether 

the worker economically depends on 

that business for work.’’ 85 FR 60617. 

While some courts assumed that 

business may desire to exert more 

control over workers who provide 

important services, there is no need to 

use importance as an indirect proxy for 

control because control is already a 

separate factor. Id. (citing Dataphase, 

781 F. Supp. at 735, and Barnard Const., 

860 F. Supp. at 777, aff’d sub nom. 

Baker v. Flint Eng’g & Const. Co., 137 

F.3d 1436 (10th Cir. 1998)). And this 

assumption may not always be valid. 

Modern manufacturers, for example, 

commonly assemble critical parts and 

components that are produced and 

delivered by wholly separate companies 

through contract rather than 

employment arrangements. And low 

transaction costs in many of today’s 

industries make it cost-effective for 

firms to hire contractors to perform 

routine tasks. 

The Department considered salvaging 

the ‘‘integral part’’ factor by 

deemphasizing ‘‘integral’’ and 

emphasizing ‘‘part.’’ Instead of focusing 

on whether the work is important ‘‘to’’ 

a potential employer’s business, the 

factor would focus on whether the work 

is an important ‘‘part’’ of that business. 

This approach would more closely align 

with how ‘‘integral part’’ was used by 

the Supreme Court in Silk, which asked 

whether workers were ‘‘an integral part 

of [defendants’] businesses,’’ as opposed 

to operating their own businesses. 331 

U.S. 716. But as the NPRM noted, the 

Silk Court framed that question as the 

ultimate inquiry, and not as a factor that 

is useful to guide the inquiry. See 85 FR 

60616 n.41. Asking whether a worker is 

part of—integral or otherwise—a 

potential employer’s business is not 

useful because it simply restates the 

ultimate inquiry: If a worker were part 

of the potential employer’s business, 

then he or she could not be in business 

for him- or herself and therefore would 

be economically dependent. As an 

added complication, new technologies 

have led to the emergence of platform 

companies that connect consumers 

directly with service providers, and it is 

often difficult to determine whether 

those platform companies are in 


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business of supporting service 

providers’ own businesses or are in the 

business of hiring service providers to 

serve customers. Compare Razak, 951 

F.3d at 147 n.12 (‘‘We also believe 

[there] could be a disputed material 

fact’’ whether Uber is ‘‘a technology 

company that supports drivers’ 

transportation businesses, and not a 

transportation company that employs 

drivers.’’), with O’Connor v. Uber 

Techs., Inc., 82 F. Supp. 3d 1133, 1153 

(N.D. Cal. 2015) (‘‘it is clear that Uber 

is most certainly a transportation 

company’’). For the reasons explained, 

the final rule retains the ‘‘integrated 

unit’’ approach. 

The Department does not share the 

Greenlining Institute’s concern that the 

final rule’s ‘‘integrated unit’’ factor 

would result in workers who perform 

‘‘physical tasks’’ being classified as 

independent contractors more than 

workers who perform white collar, 

‘‘intellectual’’ work. Meat deboning is a 

physical task, but deboners were found 

to be part of an integrated unit of 

production in Rutherford Food. 331 U.S. 

at 729. On the other hand, freelance 

writers perform a white collar task, but 

they generally are not integrated into a 

publication’s production process 

because they are not involved in, for 

instance, assigning, editing, or 

determining the layout of articles. Both 

white collar and physical labor jobs may 

be part of an integrated unit of 

production. The Department has added 

one example in new § 795.115 showing 

that a newspaper editor—who performs 

primarily white collar tasks—may be 

part of an integrated unit of production. 

Another commenter, the Arkansas 

Trucking Association, agreed that the 

‘‘integrated unit’’ factor was superior to 

‘‘integral part,’’ but suggested an 

alternative formulation based on 

whether the business’s activities would 

cease or be severely impacted by the 

absence of the worker. However, this 

approach has the same limitations as the 

approaches that emphasize 

‘‘importance.’’ Almost every worker 

performs work that is in some sense 

important to the business that has hired 

the worker; otherwise, the business 

would not hire the worker. Moreover, as 

explained in the NPRM, easily-replaced 

workers are often more dependent on a 

particular business for work precisely 

because they are so easily replaced. 

Focusing on the impact of a worker’s 

absence turns the economic dependence 

analysis on its head by essentially 

looking at the business’s dependence on 

the worker. As a result, it sends 

misleading signals about employee 

status. 

Another group of commenters 

suggested that the factor should include 

an explicit consideration of the location 

of the work performed. The U.S. 

Chamber of Commerce, for example, 

suggested that the factor should 

consider whether the worker is 

performing work ‘‘the majority of which 

is performed off the physical premises 

of the business.’’ 

Whether the work is performed on the 

business’s physical premises may be a 

consideration under the ‘‘integrated 

unit’’ factor, as it may indicate the 

extent to which the worker is part of an 

integrated unit of production. However, 

the Department does not believe it is 

necessary to include this consideration 

as an explicit part of the ‘‘integrated 

unit’’ factor. Many businesses have no 

physical location but nevertheless 

employ employees. In other instances, 

an employee may be part of an 

integrated unit despite performing work 

at a different location than other 

employees. See, e.g., Goldberg v. 

Whitaker House Cooperative, Inc., 366 

US 28, 32 (1961) (holding that workers 

who produced copies of a sample 

product at home were employees). Some 

workers perform work on a business’s 

physical premises but perform discrete, 

segregable services unrelated to any 

integrated process or unified purpose. 

Thus, although the location of the work 

may be a fact that is relevant to the 

‘‘integrated unit’’ factor, it is not so 

probative that it would be useful to 

elevate it above other facts that may be 

more relevant in a particular case. 

Several commenters asked that the 

Department clarify that the relevant 

inquiry is whether the worker is part of 

an integrated unit of production that is 

part of the potential employer’s own 

processes rather than part of a broader 

supply chain. NRF suggested clarifying 

language that would ‘‘expressly state 

that merely serving as a link in the 

chain of a company’s provision of goods 

or services’’ does not indicate employee 

status. It suggested that such language 

would make it clear that this factor does 

not indicate employee status where a 

worker is merely one, segregable step in 

the process of delivering a product to a 

consumer. 

The Department does not believe such 

a clarification is needed, because the 

text of the final rule states that this 

factor points toward employee status 

only when the worker performs ‘‘a 

component of the potential employer’s 

integrated production process.’’ The 

relevant process is the potential 

employer’s process, not the broader 

supply chain. A worker who performs a 

segregable step in the process of 

delivering a product but who is not 

integrated into the employer’s own 

production process is not part of an 

integrated unit of production. Multiple 

businesses, including independent 

contractors, may perform steps in the 

same supply chain. 

Some commenters suggested that the 

description of this factor in the 

preamble should define the scope of the 

‘‘unified purpose’’ toward which the 

potential employer’s processes work. 

WPI requested that the Department 

clarify that the ‘‘unified purpose’’ 

cannot be broader than the potential 

employer’s ‘‘core or primary business 

purpose.’’ On the other hand, 

Farmworker Justice urged a broad 

definition of ‘‘unified purpose’’ to 

prevent gamesmanship by which an 

employer may attempt to artificially 

separate its production process into 

separate units in order to claim that they 

are segregable rather than parts of a 

unified whole. It cited a hypothetical 

tomato farmer who could label its 

tomato harvesters as a separate unit 

rather than as part of the process of 

growing tomatoes. 

The Department rejects these 

suggestions, because the final rule’s 

rejection of the ‘‘integral part’’ factor 

and the question of ‘‘importance’’ or 

‘‘centrality’’ makes clear that the 

relevant facts are the integration of the 

worker into the potential employer’s 

production processes, rather than the 

nature of the work performed. As 

explained above, identifying the ‘‘core 

or primary business purpose’’ is not a 

useful inquiry in the modern economy. 

Falling transaction costs and other 

factors described above allow 

businesses to hire independent 

contractors to carry out tasks that are 

part of the businesses’ core functions, 

while keeping those functions separate 

from its own production processes. At 

the same time, seemingly peripheral 

functions may be integrated into an 

employer’s own processes, indicating 

employee status. What matters is the 

extent of such integration rather than 

the importance or centrality of the 

functions performed, which the 

Department does not find to be a useful 

indicator of employee or independent 

contractor status. 

As noted in the NPRM, the 

Department recognizes that it may be 

difficult to determine the extent to 

which a worker is part of an integrated 

unit of production. For this reason, this 

factor is not always useful to the 

economic realities inquiry, and it is less 

likely than the core factors to be 

determinative. For example, this factor 

would not indicate independent 

contractor status for Farmworker 

Justice’s hypothetical tomato harvesters 


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43See Silk, 331 U.S. at 716 (‘‘No one [factor] is 

controlling nor is the list complete.’’). 

merely because the farmer artificially 

labeled them a separate unit. As has 

been the case since the concepts 

underlying the economic realities test 

was articulated, the test does not 

depend on labels assigned to workers. 

Rutherford Food, 331 U.S. at 729 

(‘‘Where the work done, in its essence, 

follows the usual path of an employee, 

putting on an ‘independent contractor’ 

label does not take the worker from the 

protection of the Act.’’). The factor may 

indicate either employee or 

independent contractor status based on 

the extent to which the harvesters are 

integrated into the farmer’s production 

process as a matter of fact, but most 

likely the ultimate determination would 

depend more on other factors, such as 

control and opportunity for profit or 

loss. 

WPI also suggested that the 

Department clarify language in the 

preamble to the proposed rule stating 

that employee status would be indicated 

for a worker who performs work closely 

alongside conceded employees. WPI 

expressed concern that this language 

could wrongly imply that a worker 

performing different tasks than the 

conceded employees but in close 

proximity to them would indicate 

employee status. The Department does 

not believe such clarification is 

necessary, because the preamble stated 

that employee status is indicated where 

the worker ‘‘performs identical or 

closely interrelated tasks as those 

employees.’’ In other words, WPI is 

correct that if a worker works physically 

close to conceded employees but 

performs unrelated tasks, that fact alone 

would not indicate employee status. 

Finally, many commenters requested 

that the Department add examples 

explaining how this factor would apply 

to specific industries, including 

trucking, construction, financial 

advising, and personal shopping. Others 

wanted examples to address certain 

types of contractual arrangements, such 

as multi-sided platforms, franchisees, 

and buy/sell agreements. In response to 

these requests, the Department notes 

that the facts that inform the ‘‘integrated 

unit’’ factor are too circumstancespecific to apply blanket statements to 

entire industries or broad types of 

employment arrangements. Any 

particular task that is common in a 

particular industry may be performed in 

one instance by a worker who is part of 

an integrated unit of production or by a 

segregable unit. In other words, this 

factor may point in a different direction 

for workers who perform similar duties 

in the same industry but who are more 

or less integrated into their potential 

employer’s processes based on the 

potential employer’s business model. 

Moreover, contractual formalities such 

as a buy/sell agreement or contracts 

formed using multi-sided platforms 

could memorialize either employment 

or independent contractor 

arrangements; the determination would 

not depend on the labels assigned but 

on the various economic realities 

factors, including the worker’s 

integration into the potential employer’s 

production process. 

That said, as explained elsewhere in 

this preamble, although the Department 

cannot address all industries or all 

possible factual scenarios, it does 

appreciate that examples are helpful to 

understanding how each factor operates. 

The new regulatory provision added in 

this final rule to further illustrate 

several factors, § 795.115, includes two 

examples specifically meant to 

demonstrate how facts about whether a 

worker is part of an integrated unit of 

production should be considered as part 

of the employment relationship 

analysis. 

For the reasons explained, the 

Department finalizes § 795.105(d)(2)(iii) 

as proposed. 

6. Additional Unlisted Factors 

The National Restaurant Association 

stated that facts and factors not listed in 

§ 795.105(d) may be relevant to the 

question of economic dependence even 

though they would not be as probative 

as the two core factors. This commenter 

expressed concern that future courts 

may ignore these unlisted but 

potentially relevant considerations in 

response to this rulemaking and 

requested that the Department revise the 

regulatory text to explicitly recognize 

that unlisted factors may be relevant. 

While proposed § 795.105(c) already 

states that the five factors listed in 

§ 795.105(d) are ‘‘not exhaustive,’’ 43 the 

Department agrees that it may be helpful 

to make this point more explicit. The 

Department is thus adding 

§ 795.105(d)(2)(iv), which states that 

additional factors not listed in 

§ 795.105(d) may be relevant to 

determine whether an individual is an 

employee or an independent contractor 

under the FLSA. As with any fact or 

factor, such additional factors are 

relevant only to the extent that they 

help answer whether the individual is 

in business for him- or herself, as 

opposed to being economically 

dependent on an employer for work. 

Factors that do not bear on this 

question, such as whether an individual 

has alternate sources of wealth or 

income and the size of the hiring 

company, are not relevant. These 

unlisted factors are less probative than 

the core factors listed in § 795.105(d)(1), 

while their precise weight depends on 

the circumstances of each case and is 

unlikely to outweigh either of the core 

factors . 

E. Focusing the Economic Reality Test 

on Two Core Factors 

Proposed § 795.105(c) was intended to 

improve the certainty and predictability 

of the economic reality test by focusing 

the test on two core factors: (1) The 

nature and degree of the worker’s 

control over the work; and (2) the 

worker’s opportunity for profit or loss. 

This focus is an important corollary of 

the sharpened definition of economic 

dependence to include individuals who 

are dependent on a potential employer 

for work and to exclude individuals 

who are in business for themselves. The 

NPRM explained that these core factors, 

listed in proposed § 795.105(d)(1), drive 

at the heart of what is meant by being 

in business for oneself: Such a person 

typically controls the work performed in 

his or her business and enjoys a 

meaningful opportunity for profit or risk 

of loss through personal initiative or 

investment. The other economic reality 

factors—skill, permanence, and 

integration—are also relevant as to 

whether an individual is in business for 

him- or herself. But they are less 

probative to that determination. For 

instance, it is not uncommon for 

comparatively high skilled 

individuals—such as software 

engineers—to work as employees, and 

for comparatively low skill 

individuals—such as drivers—to be in 

business for themselves. See, e.g., 

Saleem, 854 F 3d at 140; Express SixtyMinutes Delivery, 161 F.3d at 306. In 

contrast, ‘‘[i]n ordinary circumstances, 

an individual ‘who is in business for 

him- or herself’ will have meaningful 

control over the work performed and a 

meaningful opportunity to profit (or risk 

loss).’’ 85 FR 60618. As such, ‘‘it is not 

possible to properly assess whether 

workers are in business for themselves 

or are instead dependent on another’s 

business without analyzing their control 

over the work and profit or loss 

opportunities.’’ Id. 

The NPRM further explained that 

focusing on the two core factors is also 

supported by the Department’s review 

of case law. The NPRM presented a 

remarkably consistent trend based on 

the Department’s review of the results of 

appellate decisions since 1975 applying 

the economic reality test. Among those 

cases, the classification favored by the 

control factor aligned with the worker’s 


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44This is not to imply that the opportunity factor 

necessarily aligns with the ultimate classification, 

but rather that the Department is not aware of an 

appellate case in which misalignment occurred. 

45The only cases in which an appellate court’s 

ruling on a worker’s classification was contrary to 

the court’s conclusions as to the control factor were 

cases in which the opportunity factor pointed in the 

opposite direction. See 85 FR 60619 (citing Paragon 

Contractors, 884 F.3d at 1235–36, and Cromwell, 

348 F. App’x at 61). 

46There are two distinct concepts within the 

economic reality test—and any test for employment 

status—that can be broad or narrow. The first 

concept is the test’s standard for employment, 

which is economic dependence. See Bartels, 332 

U.S. at 130. The second concept is the set of 

circumstances that may be considered as part of the 

test, which is the ‘‘circumstances of the whole 

activity.’’ See Rutherford Food, 331 U.S at 730. The 

breadth of these two concepts are not always 

logically related. For instance, the ABC test states 

that a worker is an employee unless the hiring party 

can establish that three criteria are met, see, e.g., 

Dynamex, 416 P.3d at 35; thus, the ABC test 

considers a relatively narrow set of circumstances 

while imposing a broad standard for employment. 

While most commenters that objected to the 

narrowing of the economic reality test did not 

present the standard of employment and 

circumstance that may be considered as separate 

concepts, the Department addresses them 

separately. 

ultimate classification in all except a 

handful where the opportunity factor 

pointed in the opposite direction. And 

the classification favored by the 

opportunity factor aligned with the 

ultimate classification in every case.44

These two findings imply that whenever 

the control and opportunity factors both 

pointed to the same classification— 

whether employee or independent 

contractor—that was the court’s 

conclusion regarding the worker’s 

ultimate classification.45 See 85 FR 

60619. In other words, the Department 

did not uncover a single court decision 

where the combined weight of the 

control and opportunity factors was 

outweighed by the other economic 

reality factors. In contrast, the 

classification supported by other 

economic reality factors was 

occasionally misaligned with the 

worker’s ultimate classification, 

particularly when the control factor, the 

opportunity factor, or both, favored a 

different classification. See id. at 60621. 

The NPRM thus provided that, given 

their greater probative value, if both 

proposed core factors point towards the 

same classification—whether employee 

or independent contractor—there is a 

substantial likelihood that is the 

individual’s correct classification. This 

is because it is quite unlikely for the 

other, less probative factors to outweigh 

the combined weight of the core factors. 

In other words, where the two core 

factors align, the bulk of the analysis is 

complete, and anyone who is assessing 

the classification may approach the 

remaining factors and circumstances 

with skepticism, as only in unusual 

cases would such considerations 

outweigh the combination of the two 

core factors. 

Numerous commenters welcomed 

proposed § 795.105(c)’s sharpening of 

the economic reality test by recognizing 

the two core factors’ greater probative 

value on whether an individual is in 

business for him- or herself. For 

instance, the U.S. Chamber of 

Commerce stated that ‘‘[t]he 

Department’s straightforward focus on 

two core factors presents a concise 

interpretation of ‘economic dependency’ 

grounded in the Act’s statutory 

definition of ‘employ’ and ‘employer,’ 

consistent with Supreme Court 

precedent, and well-reasoned courts of 

appeals’ decisions.’’ The American 

Bakers Association (ABA) likewise 

‘‘supports the Department’s position 

that the two most probative ‘core’ 

factors for determining independent 

contractor status under the FLSA are the 

degree and nature of an individual’s 

control over their work, and the 

opportunity for profit (or loss).’’ See 

also, e.g., ATA; CPIE; National 

Restaurant Association; SHRM. Even 

one commenter who did not generally 

support this rulemaking ‘‘agreed with 

the Department that the two main 

factors, control and opportunity for 

profit or loss, should be given greater 

weight.’’ Owner-Operator Independent 

Driver Association (OOIDA). 

Many commenters objected to 

focusing on the two core factors. 

Broadly speaking, they raised three 

interrelated concerns. First, commenters 

contended that elevating the two core 

factors is inconsistent with the 

economic reality test, which they 

asserted requires that factors be either 

unweighted or weighted equally. See, 

e.g., NELP (objecting to ‘‘elevating two 

narrow ‘core’ factors’’); SWACCA; 

Commissioner Slaughter of the Federal 

Trade Commission (FTC). Second, 

commenters contended that focusing on 

two core factors would narrow the scope 

of who is an employee (as opposed to 

an independent contractor) under the 

FLSA. See, e.g., NELP (‘‘The NPRM 

narrows the FLSA test for employee 

coverage[.]’’); State AGs (‘‘The Proposed 

Rule’s interpretation of [employment 

under] the FLSA is unlawfully 

narrow.’’); Appleseed Center (‘‘The 

Department of Labor is trying to 

impermissibly narrow this definition’’); 

NCFW (objecting to ‘‘agency’s proposed 

attempt to narrow the definition of 

employee’’). Third, commenters asserted 

that focusing on two core factors would 

impermissibly restrict the set of 

circumstances that may be considered 

when assessing whether a worker is an 

employee or independent contractor 

under the FLSA. TRLA (‘‘proposed 

reformulation would eliminate . . . any 

consideration of [the skill and 

permanence] factors’’); NELA (objecting 

to ‘‘a narrow, control-dominated 

inquiry’’); State AGs (objecting to 

proposed rule because it ‘‘narrows 

several areas of inquiry.’’).46 The 

Department responds to each of the 

above concerns below, and then 

addresses other requests relating to the 

focus on the two factors. 

1. Focusing on Two Core Factors is 

Consistent With the Economic Reality 

Test 

Many commenters contended that 

emphasizing core factors over others 

would violate a requirement that 

economic reality factors be unweighted 

or weighted equally. According to 

SWACCA, ‘‘[t]he proposed weighted 

rule is a novel concept and a departure 

from existing caselaw.’’ See also, e.g., 

NELA (objecting to ‘‘emphasizing 

certain factors over what should be the 

‘ultimate inquiry’ ’’). FTC Commissioner 

Slaughter likewise objected that ‘‘[t]he 

Proposal takes the Supreme Court’s five 

factor test, where all five factors are 

given equal weight, and narrows it 

down to focus on only two [core] 

factors.’’ See also Appleseed Center 

(‘‘[A]ll are given equal weight.’’); 

Senator Patty Murray (suggesting that 

‘‘DOL afford [factors] equal weight’’). 

NELP appeared to agree with the 

Department that the economic reality 

test may focus on certain factors over 

others, but asserted that ‘‘the factor of 

integration into the business of another 

should be weighed heavily,’’ rather than 

the proposed rule’s two core factors. 

Several commenters further relied on an 

age discrimination case to contend that 

the economic reality test ‘‘cannot be 

rigidly applied’’ and that ‘‘[i]t is 

impossible to assign to each of these 

factors a specific and invariably applied 

weight.’’ NELP (quoting Hickley v. Arkla 

Indus., Inc., 699 F.2d 748, 752 (5th Cir. 

1983)); see also Michigan Regional 

Council of Carpenters (MRCC) (same). 

The Department disagrees that the 

economic reality test requires factors to 

be unweighted or equally weighted. 

Each time the Department or a court 

applies the test, it must balance 

potentially competing factors based on 

their respective probative value to the 

ultimate inquiry of economic 

dependence. In the very case that 

announced the economic reality factors, 

the Supreme Court listed five factors 

that are ‘‘important for decision’’ but 


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47 In particular, the Saleem court focused on: 

drivers’ ‘‘considerable discretion in choosing the 

nature and parameters of their relationship with the 

defendant,’’ ‘‘significant control over essential 

determinants of profits in [the] business,’’ how they 

‘‘invested heavily in their driving businesses,’’ and 

the ‘‘ability to choose how much work to perform.’’ 

854 F.3d at 137–49. 

48The Razak decision also briefly addressed 

other factors, including a footnote on the ‘‘integral’’ 

factor and a discussion that was nominally about 

the permanence factor but actually concerned 

control: ‘‘On one hand, Uber can take drivers 

offline, and on the other hand, Plaintiffs can drive 

whenever they choose to turn on the Driver App, 

with no minimum amount of driving time 

required.’’ 951 F.3d at 147 n.12. 

49Some courts have explicitly acknowledged that 

facts related to the control factor were more 

probative than facts related to other factors. For 

instance, the court in Saleem stated that ‘‘whatever 

‘the permanence or duration’ of Plaintiffs’ affiliation 

with Defendants, both its length and the ‘regularity’ 

of work was entirely of Plaintiffs’ choosing.’’ 854 F. 

3d at 147 (citation omitted). When discussing ‘‘the 

use of special skills,’’ the court in Selker Brothers 

similarly explained that, ‘‘[g]iven the degree of 

control exercised by Selker over the day-to-day 

operations of the stations, this criterion cannot be 

said to support a conclusion of independent 

contractor status.’’ 949 F.2d at 1295. 

50 Driscoll, 603 F.2d at 755 (‘‘The appellants’ 

affidavits, which must be taken as true for summary 

judgment purposes, plainly disclose that 

[defendant] possesses substantial control over 

important aspects of the appellants’ work’’); id. 

(‘‘The appellants’ opportunity for profit or loss 

appears to depend more upon the managerial skills 

of [defendant]’’); Lauritzen, 835 F.2d at 1536 (‘‘The 

defendants exercise pervasive control over the 

operation as a whole.’’); id. (‘‘The Sixth Circuit [in 

a prior case] found that the migrant workers had the 

opportunity to increase their profits through the 

management of their pickle fields....We do not 

agree.’’); Howes 7 F. Supp. 3d at 726, aff’d sub nom. 

Perez v. D. Howes LLC, 790 F.3d 681 (6th Cir. 2015); 

(‘‘Accordingly, [the control] factor weighs in favor 

of a finding that the workers were employees.’’); id. 

(‘‘[W]orkers could simply increase their wages by 

working longer, harder, and smarter—this does not 

constitute an opportunity for profit.’’); Cavazos, 822 

F. Supp. at 442 (‘‘Their lack of control supports 

plaintiffs’ claim that they are employees.’’); id. at 

443 (noting that the work relationship ‘‘does not 

afford plaintiffs an opportunity for profits’’). 

did not treat them equally. Silk, 331 

U.S. at 716. It instead emphasized the 

most probative factors, while deemphasizing less probative ones in that 

case. The Court focused on the fact that 

coal unloaders ‘‘had no opportunity to 

gain or lose’’ to conclude they were 

employees under the SSA, while 

explaining the fact ‘‘[t]hat the unloaders 

did not work regularly was not 

significant.’’ Id. at 717–18. The Court 

further focused on ‘‘the control 

exercised [and] the opportunity for 

profit from sound management’’ to 

conclude that truck drivers were 

independent contractors, without 

discussing any of the other economic 

reality factors. Id. at 719. Similarly, the 

Court in Whitaker House concluded that 

workers at issue in that case were 

employees based primary on 

considerations relating to control (e.g., 

the workers were ‘‘regimented under 

one organization, manufacturing what 

the organization desires’’) and 

opportunity for profit (e.g., the workers 

were ‘‘receiving the [piece rate] 

compensation the organization dictates’’ 

rather than ‘‘selling their products on 

the market for whatever price they can 

command’’). 366 U.S. at 32–33. 

As discussed in the NPRM, courts of 

appeals also emphasized facts and 

factors that are more probative of the 

economic dependence inquiry. See 85 

FR 60620. In Saleem, the Second Circuit 

focused on facts relating to drivers’ 

control over their work and their 

opportunity for profit or loss based on 

initiative or investment to conclude that 

they were independent contractors.47

854 F.3d at 138–39; see also Agerbrink 

v. Model Service LLC, 787 F. App’x 22, 

25–27 (2d Cir. 2019) (denying summary 

judgement based solely on disputed 

facts regarding plaintiff’s ‘‘control over 

her work schedule, whether she had the 

ability to negotiate her pay rate, and, 

relatedly, her ability to accept or decline 

work’’). The Third Circuit in Razak v. 

Uber Technologies took a similar 

approach by emphasizing disputed facts 

regarding ‘‘whether Uber exercises 

control over drivers’’ ’ and had ‘‘the 

opportunity for profit or loss depending 

on managerial skill’’ to deny summary 

judgment. 951 F.3d at 145–47.48 And 

the Eight Circuit recently emphasized a 

process server’s ability to determine his 

own profits by controlling hours, which 

assignments to take, and for which 

company to work, to affirm a jury 

verdict that he was an independent 

contractor. See Karlson, 860 F.3d at 

1095. 

Courts have repeatedly warned 

against the ‘‘mechanical application’’ of 

the economic reality factors when 

determining whether an individual is an 

employee or independent contractor. 

See, e.g., Saleem, 854 F.3d at 139; 

Superior Care, 840 F.2d at 1059. Rather, 

the factors should be analyzed with the 

aim of answering the ultimate inquiry 

under the FLSA: ‘‘Whether an 

individual is ‘in business for himself’ or 

is ‘dependent upon finding employment 

in the business of others.’ ’’ Scantland, 

721 F.3d at 1312 (quoting Mednick, 508 

F.2d at 301–02). Commenters who 

object to focusing on the two core 

factors do not dispute this principle, 

and some affirmatively support it. For 

instance, NELA and the State AGs both 

stated that economic reality ‘‘factors ‘are 

aids—tools to be used to gauge the 

degree of dependence of alleged 

employees on the business with which 

they are connected’ ’’ (quoting Pilgrim 

Equip., 527 F.2d at 1311). NELA 

nonetheless believed that it would be 

inappropriate to ‘‘emphasiz[e] certain 

factors over what should be the 

‘ultimate inquiry’: The worker’s 

economic dependence on the putative 

employer.’’ Emphasizing certain factors, 

however, would dilute the ultimate 

inquiry of economic dependence only if 

those factors were less probative of 

economic dependence than others. In 

contrast, emphasizing factors that are 

more probative would not dilute but 

rather focus the analysis on the ultimate 

inquiry under the FLSA. If NELA and 

the State AGs are correct that the 

economic reality factors must be ‘‘used 

to gauge the degree of dependence,’’ 

then focusing on factors that are more 

probative measures of economic 

dependence is not only permitted but 

preferred. 

The Department’s review of case law 

indicates that courts of appeals have 

effectively been affording the control 

and opportunity factors greater weight, 

even if they did not always explicitly 

acknowledge doing so.49 See 85 FR 

60619. Among the appellate decisions 

since 1975 that the Department 

reviewed, whenever the control factor 

and the opportunity factor both pointed 

towards the same classification— 

whether employee or independent 

contractor—that was the worker’s 

ultimate classification. Put another way: 

In those cases where the control factor 

and opportunity factor aligned, had the 

courts hypothetically limited their 

analysis to just those two factors, it 

appears to the Department that the 

overall results would have been the 

same. One commenter attempted to 

dispute this finding. TRLA asserted that, 

in the following four cases, farmworkers 

who were found to be employees ‘‘might 

be reclassified as independent 

contractors based on the NPRM’s two 

core factors:’’ Driscoll, 603 F.2d 748; 

Lauritzen, 835 F.2d 1529; Perez v. 

Howes, 7 F. Supp. 3d 715 (W.D. Mich. 

2014); and Cavazos v. Foster, 822 F. 

Supp. 438 (W.D. Mich. 1993). However, 

the court in each of these cases actually 

concluded that the control and 

opportunity factors both favored 

employee classification,50 and thus the 

farmworkers would have been found to 

be employees even if those courts had 

hypothetically based is decision solely 

on the core factors. These cases 

therefore reinforce the Department’s 

conclusion that the control and 

opportunity factors have been 

consistently afforded significant weight 

in the economic dependence inquiry. 

The consistent empirical trend 

indicating that the control and 

opportunity factors have been afforded 


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51According to NELP, this language is a quotation 

from AI 2015–1 that was withdrawn in 2017. But 

that withdrawn guidance does not contain the 

quoted language. 

52The court in Hickley applied the economic 

reality test in the context of the Age Discrimination 

in Employment Act of 1967, 29 U.S.C. 621–34, 

without opining whether that was the correct test 

under the ADEA. 699 F.2d at 752 (‘‘Finding . . . 

there was no evidence . . . that Hickey was an 

employee under the more liberal ‘economic 

realities’ test used in FLSA cases, [but] express[ing] 

no opinion on whether it or one of the tests used 

in Title VII cases should ultimately be used to 

determine employee status in ADEA cases.’’). 

Hickley’s ‘‘specific and invariably applied weight’’ 

dicta appears in one FLSA case, Parrish, 719 F.3d 

at 380, as a see also parenthetical to support the 

proposition that economic reality factors should not 

be applied mechanically. 

greater weight should be unsurprising 

given their greater probative value. As 

the NPRM explained, those two factors 

‘‘strike at the core’’ of what it means to 

be in business for oneself, 85 FR 60612, 

and therefore they are more probative of 

the ultimate inquiry under the FLSA: 

‘‘whether an individual is ‘in business 

for himself’ or is ‘dependent upon 

finding employment in the business of 

others.’ ’’ Scantland, 721 F.3d at 1312 

(quoting Mednick, 508 F.2d at 301–02). 

No commenters offered a persuasive 

counterargument to the commonsense 

logic that, when determining whether 

an individual is in business for him- or 

herself, the extent of the individual’s 

control over his or her work is more 

useful information than, for example, 

the skill required for that work. Nor did 

any commenters effectively rebut that 

the extent of an individual’s ability to 

earn profits (or suffers losses) through 

initiative or investment is more useful 

information than, for example, how long 

that individual has worked for a 

particular company. 

NELP appeared to agree with the 

Department that emphasis should be 

given to factors that are most probative 

to the ultimate inquiry of whether an 

individual is in business for him- or 

herself, but disagrees as to what those 

factors should be. In particular, NELP 

asserted that ‘‘the factor of integration 

into the business of another should be 

weighed heavily and in fact is 

ultimately the test. If the work is 

integrated this leads to the conclusion 

that the worker is not independently 

running a business.’’ 51

NELP correctly defines the economic 

dependence inquiry as ‘‘whether a 

person is in business for themselves and 

therefore independent, or works instead 

in the business of another and 

dependent on that business for work.’’ 

If a worker is economically dependent 

on an employer for work, the worker is 

not in business for him- or herself. 

NELP then defines the ‘‘integration 

factor’’ to mean the exact same thing: ‘‘If 

the work is integrated this leads to the 

conclusion that the worker is not 

independently running a business.’’ 

NELP is correct that, when defined as 

such, ‘‘the factor of integration . . . in 

fact is the ultimate test,’’ but that factor 

would not be helpful in ascertaining a 

worker’s employment status because it 

simply restates the question. The 

Department, courts, and the regulated 

community would still have to 

determine which factors to analyze to 

determine whether an individual is in 

business for him- or herself. The 

Department therefore declines to create 

and give greater weight to NELP’s 

concept of the ‘‘integration factor’’ and 

continues to believe that the control and 

opportunity factors are the most 

probative as to whether an individual is 

in business for him- or herself as a 

matter of economic reality. 

NELP and MRCC quoted dicta from an 

age-discrimination case that ‘‘[i]t is 

impossible to assign to each of [the 

economic reality] factors a specific and 

invariably applied weight.’’ Hickley, 699 

F.2d at 752.52 This proposed rule, 

however, does not run afoul of Hickley’s 

dicta. As an initial matter, neither core 

factor individually has ‘‘a specific and 

invariably applied weight’’ because the 

proposed rule does not state that one 

necessarily outweighs the other. The 

Department nonetheless recognizes that 

proposed § 795.105(c)’ statement that 

‘‘each [core factor] is afforded greater 

weight in the analysis than is any other 

factor’’ may be overly rigid. For reasons 

explained above, certain types of facts— 

i.e., those falling within the control and 

opportunity factors—are more probative 

than others regarding whether an 

individual is in business for him- or 

herself. But that does not necessarily 

mean the control or opportunity factors 

are entitle to greater weight in all cases. 

For example, it may be the case that, 

after all the circumstances have been 

considered, a core factor does not weigh 

very strongly towards a particular 

classification because considerations 

within that factor point in different 

directions. See Cromwell, 348 F. App’x 

at 61 (finding that ‘‘defendants here did 

not control the details of how the 

plaintiffs performed their assign jobs’’ 

but did have ‘‘complete control over 

[their] schedule and pay’’). A core factor 

could even be at equipoise, in which 

case it would not weigh at all in favor 

of a classification. See Johnson, 371 F. 

3d at 730 (concluding that competing 

facts regarding plaintiffs’ opportunity 

for profit or loss meant that the ‘‘jury 

could have viewed this factor as not 

favoring either side’’). In short, there is 

a subtle but important distinction that 

was not fully reflected in the NPRM’s 

language between a factor’s probative 

value as a general matter and its specific 

weight in a particular case. Probative 

value refers to the extent to which a 

factor encapsulates types of facts that 

illuminate the ultimate inquiry of 

whether workers are in business for 

themselves, as opposed to being 

dependent on an employer for work. 

The weight assigned to a factor in a 

particular case refers to how strongly 

specific facts within the factor, on 

balance, favors a particular 

classification. Considerations within a 

core factor may have significant 

probative value even though that factor, 

on balance, does not weigh heavily 

towards a classification in a specific 

case. The Department therefore revises 

§ 795.105(c) to more clearly distinguish 

between a core factor’s probative value 

as a general matter and its’ weight in a 

specific case and to clarify that the core 

factors’ greater probative value means 

that they typically (but not necessarily) 

carry greater weight . Thus it should be 

clear that the rule does not assign any 

factor a specific or invariable weight. In 

contrast, the approach favored by some 

commenters, including the Appleseed 

Center and Commission Slaughter, to 

give each factor ‘‘equal weight’’ would 

‘‘assign to each of the factors a specific 

and invariably applied weight.’’ 

Hickley, 699 F.2d at 752. 

At bottom, the final rule’s focus on 

two core factors thus does not depart 

from the economic reality test—it 

merely elucidates the factors’ respective 

probative values that have always 

existed but never been explained. Cf. 

Lauritzen, 835 F.2d at 1539 (‘‘Why keep 

[employers] in the dark about the legal 

consequences of their deeds.’’ 

(Easterbrook, J., concurring)). As 

explained in more detail below, 

providing such clarification for the 

regulated community would not narrow 

the scope of who is an FLSA employee 

as opposed to an independent 

contractor. Nor would it narrow the 

circumstances that may be considered 

under the economic reality test. 

2. The Proposed Rule Would Not 

Narrow the Standard for FLSA 

Employment 

A number of commenters argued that 

focusing the economic reality test on the 

control and opportunity factors would 

narrow the standard for employment 

under the FLSA. The FLSA defines 

‘‘employ’’ as including ‘‘to suffer or 

permit to work,’’ 29 U.S.C. 203(g), and 

these commenters argued this definition 

should be interpreted to provide broad 

coverage in light of the Act’s remedial 


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53Courts apply this economic dependence 

standard for employment in the employee-versusindependent contractor context, but use different 

approaches in other contexts. See, e.g., Glatt v. Fox 

Searchlight Pictures, 811 F.3d 528 (2d Cir. 2016). 

purpose. See, e.g., AFL–CIO; NELA; 

NELP; Senator Patty Murray; State AGs. 

Most of these commenters argued that 

the proposed rule is incompatible with 

the Act’s broad definition of 

employment because focusing on the 

control factor would effectively adopt 

the narrower scope of employment 

under the common law control test. One 

commenter, however, had a different 

view: UPS argued that the proposed rule 

would adopt a narrower standard for 

employment by giving the control factor 

too little weight. 

Discussing the proposed rule’s 

consistency with the FLSA’s standard 

for employment first requires an 

understanding of the Act’s definitions. 

Commenters point out that the Act 

defines ‘‘employ’’ as including ‘‘to 

suffer or permit to work,’’ 29 U.S.C. 

203(g), but the Supreme Court has 

observed that, although broad, the Act’s 

definitions are not clear regarding the 

scope of relationships that are included. 

Rutherford Food, 331 U.S. at 728 

(‘‘[T]here is in the [FLSA’s text] no 

definition that solves problems as to the 

limits of the employer-employee 

relationship under the Act.’’). Courts of 

appeals have likewise found the 

definitions not to clearly indicate the 

precise contours of FLSA employment. 

See, e.g., Solis v. Laurelbrook 

Sanitarium & Sch., Inc., 642 F.3d 518, 

522 (6th Cir. 2011); Steelman v. Hirsch, 

473 F.3d 124, 128 (4th Cir. 2007). 

As commenters also noted, the 

Supreme Court relied on the FLSA’s 

purpose and legislative history to 

interpret the ‘‘suffer and permit’’ 

language to encompass a more inclusive 

definition of employment than that of 

the common law. Rutherford Food, 331 

U.S. at 727 (affirming that FLSA 

employment is not limited to the 

‘‘common law test of control, as the act 

concerns itself with the correction of 

economic evils through remedies which 

were unknown at common law’’); see 

also Darden, 503 U.S. at 326. The 

Supreme Court has ‘‘consistently 

construed the Act liberally in 

recognition that broad coverage is 

essential to accomplish [its] goal,’’ Tony 

& Susan Alamo, 471 U.S. at 296, but at 

the same time, the Court also recognized 

that the ‘‘suffer or permit’’ definition 

‘‘does have its limits.’’ Id. at 295; see 

also Portland Terminal, 330 U.S. at 152 

(‘‘The definition ‘suffer or permit to 

work’ was obviously not intended to 

stamp all persons as employees.’’). No 

court has suggested that applying such 

limits (including the limit that bona fide 

independent contractors are not 

employees under the Act) cannot be 

reconciled with the Act’s remedial 

purpose. Cf. Encino Motorcars, LLC v. 

Navarro, 138 S. Ct. 1134, 1142 (2018) 

(Encino II) (warning against relying on 

‘‘flawed premise that the FLSA 

‘pursues’ its remedial purpose ‘at all 

costs’’’ when interpreting the Act). 

Ultimately, ‘‘[t]he test of employment 

under the Act is one of ‘economic 

reality.’’’ Tony & Susan Alamo, 471 U.S. 

at 301 (quoting Whitaker House, 366 

U.S. at 33)). This rule applies such a test 

and does so with sufficient breadth 

consistent with the Act’s remedial 

purpose. 

While the phrase ‘‘economic reality’’ 

is on its face no clearer than the ‘‘suffer 

or permit’’ language, see Lauritzen, 835 

F.2d at 1539 (Easterbrook J., 

concurring), decades of case law has 

refined its meaning. The Court 

determined that employees include 

‘‘those who as a matter of economic 

reality are dependent upon the business 

to which they render service.’’ Bartels, 

332 U.S. at 130. Courts of appeals have 

subsequently used Bartels’s concept of 

economic dependence to determine 

employment under the FLSA. See, e.g., 

Saleem, 854 F.3d at 139; Mr. W 

Fireworks, 814 F.2d at 1054; 

DialAmerica, 757 F.2d at 1385. Thus, 

the courts have interpreted the scope of 

employment under the Act’s definition 

to include any individual who is 

‘‘dependent upon finding employment 

in the business of others,’’ and to 

exclude any individual who is ‘‘in 

business for himself.’’ Scantland, 721 

F.3d at 1312.53 However, as noted in the 

need for rulemaking discussion, this 

principle has not always been applied 

consistently. 

The Department agrees with this 

interpretation and further believes that 

the economic dependence standard 

developed by courts comports with the 

‘‘suffer or permit’’ statutory text. As the 

NPRM explained: ‘‘An individual who 

depends on a potential employer for 

work is an employee whom the 

employer suffers or permits to work. In 

contrast, an independent contractor 

does not work at the sufferance or 

permission of an employer because, as 

a matter of economic reality, he or she 

is in business for him- or herself.’’ 85 FR 

60606 (citing Saleem, 854 F.3d at 139). 

Commenters generally agreed that 

employee versus independent 

contractor status under the FLSA is 

determined by the worker’s economic 

dependence, and several of the abovementioned commenters affirmatively 

supported this standard. For example, 

NELA stated that ‘‘[i]t is dependence 

that indicates employee status’’ (quoting 

Usery, 527 F.2d at 1311). And the State 

AGs explain that ‘‘[t]he ultimate 

concern is whether, as a matter of 

economic reality, the workers depend 

on someone else’s business . . . or are 

in business for themselves’’ (quoting 

Superior Care, 840 F.2d at 1059). 

Most commenters who objected to 

focusing the economic reality test on the 

two core factors were concerned that 

such an approach would narrow FLSA 

employment to the common law 

standard. For instance, NELA stated that 

‘‘[b]y affording the control factor greater 

weight in the economic reality analysis, 

the Department slides back toward the 

common law agency test.’’ See, e.g., 

AFL–CIO (‘‘[T]he proposed rule 

effectively collapses the FLSA’s 

definition into the common law 

definition by giving primacy and 

controlling weight to the two factors of 

control and opportunity for profit and 

loss.’’). The implied logic behind this 

concern is that if one test gives greater 

weight to a factor that is also given 

greater weight by a second test, the two 

tests necessarily have an equal scope of 

employment. But that does not follow. 

A comparison with the ABC test is 

illustrative. That test creates a 

presumption of employee status, which 

can be overridden only if all three 

factors are established. One of the ABC 

test’s factors is ‘‘whether the worker is 

free from the control and direction of 

the hiring entity.’’ This factor is given 

dispositive weight under certain 

circumstances: If the worker is 

controlled by the hiring party, then he 

or she is automatically an employee, 

regardless of other considerations. The 

common law control test also gives 

control dispositive weight. While both 

tests afford control greater weight than 

the economic reality test, one test (ABC) 

has a broader scope of employment than 

the economic reality test and the other 

(common law) has a narrower scope. 

The relative weight attached to a 

particular factor does not, by itself, 

determine whether the ultimate scope of 

employment is broad or narrow. 

Accordingly, it is not possible to 

compare the breadth of the standards for 

employment used by two tests simply 

by comparing the weight attached to a 

shared factor. Rather, it is necessary to 

consider how each test’s factors are 

actually applied. 

Under the common law control test, 

control is the ultimate inquiry: If an 

individual controls the work, then he or 

she would be an independent contractor 

rather than an employee. However, such 

control by itself would be insufficient to 

establish the worker as an independent 

contractor under the Department’s rule. 


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54 In any event, courts have foreclosed UPS’s 

requested remedy of giving the control factor 

dispositive weight to determine employee status. 

See, e.g., Silk, 331 U.S. at 716 (‘‘No one factor is 

controlling); Keller, 781 F.3d at 807 (‘‘No one factor 

is determinative.’’); Baker, 37 F.3d at 1440 (‘‘None 

of the factors alone is dispositive.’’). 

Other considerations, including the 

second core factor of opportunity for 

profit or loss, can outweigh the control 

factor and result in a classification of 

employee status. That is precisely what 

happened in Paragon Contractors, 

wherein the control and integral part 

factors weighed in favor of independent 

contractor classification but the court 

nonetheless held that the worker was an 

employee because the remaining factors, 

including opportunity for profit or loss, 

favored classification as an employee. 

See 884 F.3d at 1238. And even if the 

individual both controls the work and 

has a meaningful opportunity for profit 

or loss, he or she still would not 

necessarily be classified as an 

independent contractor under the 

Department’s rule because other factors 

may outweigh those two core factors in 

rare cases. In short, because the ultimate 

inquiry under the common law control 

test is the worker’s right to control the 

manner and means by which the work 

is performed, such control by the 

worker disqualifies the worker from 

being an employee under that test, but 

more is needed under the rule’s 

articulation of the economic reality test 

because economic dependence is the 

ultimate inquiry. Thus, the rule’s 

standard for employment remains 

broader than the common law standard. 

Nor does the rule ‘‘slide[ ] back toward 

the common law agency test,’’ as NELA 

contends, or otherwise narrow the 

standard of employment under the 

FLSA. As explained above, the standard 

for determining whether an individual 

is an employee under the FLSA or an 

independent contractor has always been 

economic dependence. The two core 

factors are more probative than other 

factors regarding whether an individual 

is in business for him- or herself, as 

opposed to being dependent on an 

employer for work. Neither NELA nor 

likeminded commenters dispute this 

specific claim. NELA further recognized 

that economic reality factors must be 

‘‘used to gauge the degree of 

dependence.’’ If so, the test should focus 

on core factors that are more probative 

measures of dependence. Doing 

otherwise would serve no purpose other 

than to make regulations more 

confusing, thereby reducing compliance 

and driving up the transaction cost of a 

lawful business practice. 

UPS expressed the opposite concern 

as NELA and likeminded commenters, 

asserting that the proposed rule did not 

give enough weight to the control factor. 

According to UPS, treating control as a 

factor to be balanced rather than giving 

it dispositive weight ‘‘leaves open the 

possibility that a worker could be 

classified as an ‘independent contractor’ 

even when the common-law control 

factor indicated employee status.’’ The 

potential for such an outcome implies 

that FLSA employment may be 

narrower than the common law 

standard in certain circumstances. 

As an initial matter, UPS’s concern 

that the control factor may be 

outweighed by other considerations 

even when it indicates employee status 

also applies to every prior articulation 

of the economic reality test—indeed 

more so—because none of them gave the 

control factor greater weight, much less 

dispositive weight. The rule addresses 

UPS’s concern because it explicitly 

identifies control as a core factor that is 

less likely to be outweighed by other 

factors. More importantly, UPS’s 

concern could materialize only if the 

control factor were balanced against 

other factors without regard for the 

ultimate inquiry for FLSA employment. 

Courts have cautioned against such 

‘‘mechanical application’’ of the 

economic reality factors and have 

instead instructed that all factors should 

guide the analysis of whether the 

individual is in business for him or 

herself or is dependent on others for 

work. See, e.g., Saleem, 854 F.3d at 140. 

For these reasons, the Department does 

not share UPS’s concern that not giving 

dispositive weight to the control factor 

results in a standard for employment 

that is narrower than the common law.54

3. The Rulemaking Will Not Restrict the 

Range of Considerations Within 

Economic Reality Test 

A number of commenters contend 

that the proposed rule’s focus on the 

two core factors is inconsistent with 

case law requiring the ‘‘circumstances of 

the whole activity’’ to be considered as 

part of the inquiry into economic 

dependence. State AGs (quoting 

Rutherford Food, 331 U.S. at 730); see 

also, e.g., NELA (‘‘The economic reality 

inquiry therefore cannot be answered 

without ‘employ[ing] a totality-of-thecircumstances approach.’ ’’ (quoting 

Baker, 137 F.3d at 1441)); see also 

Senator Patty Murray (‘‘No one test 

factor is controlling, nor is the list 

exhaustive.’’); TRLA (same). 

The Department agrees with 

commenters that the circumstances of 

the whole activity should be considered 

as part of the economic reality inquiry. 

See 85 FR 60621 (‘‘Other factors may 

also be probative as part of the 

circumstances of the whole activity’’). 

While all circumstances must be 

considered, it does not follow that all 

circumstances or categories of 

circumstance, i.e., factors, must also be 

‘‘given equal weight.’’ See e.g., FTC 

Commissioner Slaughter; Appleseed 

Center. Assigning one factor less weight 

than another does not restrict the 

circumstances being considered because 

the very act of determining relative 

weight requires considering both 

factors. 

As explained above, each factor 

should be analyzed in accordance with 

its probative value to the ultimate 

inquiry of whether an individual is in 

business for him or her-self. To be sure, 

the specific weight of the factors 

depends on specific circumstances. The 

control and opportunity factors are 

nonetheless more probative than other 

factors in determining whether an 

individual is in business for him- or 

herself. As such, it is appropriate to 

recognize, as the proposed rule does, 

that these two more probative factors 

should typically carry greater weight 

than other factors. Doing so would not, 

as TRLA contends, ‘‘eliminate . . . any 

consideration of [other] factors that have 

often been regarded as probative in the 

farm labor context.’’ The proposed rule 

explicitly permits other factors to 

outweigh the two core factors if the 

specific circumstances of the case— 

whether in the farm labor context or 

another contexts—warrants such a 

result. In order to determine whether 

the combined weight of the two core 

factors are outweighed or not by other 

factors, it is necessary to consider both 

sets of factors. Nor would it make any 

‘‘single factor determinative by itself.’’ 

Hopkins, 545 F.3d at 343. Neither of the 

core factors can be ‘‘determinative by 

itself’’ because there is a second core 

factor against which each is balanced. 

Even when both core factors align, they 

are not ‘‘controlling’’ because their 

combined weight can still be 

outweighed by other considerations. 

4. Other Comments Regarding the Focus 

on the Two Core Factors 

PAM and Global Tranz requested that 

the Department create a ‘‘bright-line 

test’’ that ‘‘would be limited to the two 

‘core factors’ already identified in the 

Proposed Rule: (1) the nature and degree 

of the individual’s control over the 

work, and (2) the individual’s 

opportunity for profit or loss.’’ See also 

Cetera Financial Group (CFG) (‘‘we 

believe it would be appropriate for the 

Department to limit the criteria 

employed in the economic dependence 

analysis to the two Core factors and 


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eliminate the others’’). According to 

these commenters, a two-factor test 

would be even clearer and simpler than 

the proposal to focus the test on the two 

core factors, while still considering 

other factors. Other commenters 

requested that the Department eliminate 

one or more of the non-core factors 

listed in § 795.105(d)(2) from the 

economic reality test because such 

factors have little to no probative value 

in some circumstance, and may 

sometimes send misleading signals 

regarding an individual’s classification. 

CWI and the National Restaurant 

Association asked the Department to 

eliminate the skill required factor; 

SHRM and the U.S. Chamber of 

Commerce were among several 

commenters who suggested that the 

Department eliminate the permanence 

factor; and ATA, NDHA, and others 

requested eliminating the integrated 

unit factor. 

The Department believes that the two 

core factors of control and opportunity 

are always probative as to whether an 

individual is in business for him- or 

herself. The Department further agrees 

with the above commenters that the 

other factors are less probative and may 

have little to no probative value in some 

circumstances. See, e.g., Silk, 331 U.S. 

at 718 (‘‘That the unloaders did not 

work regularly is not significant.’’). 

However, ‘‘circumstances of the whole 

activity should be examined’’ as part of 

the economic reality test, meaning that 

the other factors should be considered 

in all cases even if they are not always 

probative once considered. DialAmerica 

Mktg., Inc., 757 F.2d at 1382. If a factor 

is probative in some situations but not 

in others, there is still a need to 

consider that factor to determine 

whether it is probative in a particular 

case. Eliminating the non-core factors 

from consideration would therefore be 

warranted only if those factors lacked 

probative value in all circumstances— 

that is, if there was never a need to even 

consider whether they had probative 

value. 

Because non-core factors are probative 

in many circumstances, the Department 

believes it would be inappropriate to 

eliminate them. In response to 

commenters’ concern that non-core 

factors may not always be probative, the 

Department is making non-substantive 

revisions to clarify that the two core 

factors are always probative as to 

whether an individual is in business for 

him- or herself, but there may be 

circumstances where one or more of the 

non-core factors, upon consideration, 

has little or no probative value. 

Several commenters requested that 

the Department revise § 795.105(c) to 

state that if the two core factors point 

towards the same classification, there is 

no need to consider any other factors. 

See e.g., NRF (‘‘if both of the core factors 

point in the same direction, then a court 

may consider only those two factors and 

end the analysis without examining the 

three additional possible factors 

identified by DOL’’); SHRM (requesting 

revision ‘‘to ensure that if the Core 

Factors indicate the same status of the 

worker, no further analysis is 

necessary’’). According to the SHRM, 

such an approach would ‘‘create clear 

expectations and stable grounds to build 

working relationships.’’ 

The Department believes that the 

economic reality test cannot be rigidly 

applied and concludes that its approach 

of giving certain factors greater weight 

and other factors lesser weight while 

retaining flexibility as to the degree of 

weight depending on the facts of the 

case best accounts for all of the 

circumstances that work relationships 

present. Commenters’ requests would 

require the Department to state that the 

combined probative value of the two 

core factors—whatever that might be— 

always outweighs the combined 

probative value of other factors. The 

Department believes that will usually be 

the case, but does not rule out the 

possibility that, in some circumstances, 

the core factors could be outweighed by 

particularly probative facts related to 

other factors. 

Several commenters effectively 

requested that the Department assign a 

specific relative weight to one core 

factor as compared to the other. CWI 

requested that the Department always 

weigh the two core factors equally, 

while the HR Policy Institute requested 

that the control factor always be given 

greater weight than the opportunity 

factor. The Department declines to 

implement both requests. The 

Department’s review of U.S. Courts of 

Appeals cases since 1975 did not 

indicate that the control and 

opportunity factors should be weighed 

equally. Nor did that review indicate 

that the control factor should always 

outweigh the opportunity factor. Indeed, 

in the few cases reviewed by the 

Department where the control and 

opportunity factors pointed towards 

different classifications, the ultimate 

classification aligned with the 

opportunity for factor. See 85 FR 60619 

(citing Paragon Contractors, 884 F.3d at 

1235–36, and Cromwell, 348 F. App’x at 

61). Ultimately, the Department is 

confident in its conclusion that the two 

core factors are more probative than all 

other factors and that framework is 

logical, as described above. But the 

Department declines to assign an 

invariable relative weight between the 

two core factors. 

Several commenters requested that 

the Department revise § 795.105(c) to 

establish a rebuttable presumption of 

employee or independent contractor 

status if both core factors indicate the 

same classification. Such a presumption 

would be rebuttable only by 

‘‘substantial evidence to the contrary 

under all three [other factors].’’ ATA. 

According to ATA, a rebuttable 

presumption ‘‘[w]ould further reduce 

the possibility of courts unnecessarily 

and potentially selectively applying and 

weighing the three additional factors for 

preferred policy outcomes, which has 

been a concern with regard to the 

current test in some instances.’’ As the 

NPRM explained, the Department 

considered but did not propose a 

rebuttable presumption based on 

alignment of the two core factors 

because it was concerned a formal 

presumption may be needlessly 

complex or burdensome. See 85 FR 

60621. The Department further believes 

that emphasizing the importance of the 

two core factors provides sufficient 

clarity. As such, the Department 

declines to adopt a presumption-based 

framework. 

CWI requested that the ‘‘the Final 

Rule spell out specifically that each of 

the Core Factors should be analyzed 

independently of the other, without 

overlap.’’ The Department agrees with 

CWI that overlaps between economic 

reality factors, core or otherwise, should 

be minimized. As discussed in the 

NPRM and in this preamble, reducing 

such overlap is one of the reasons for 

this rulemaking. That said, the 

Department believes specific regulatory 

instructions against overlapping 

analysis of the two core factors is not 

necessary and may be confusing. The 

Department believes proposed 

§ 795.105(d)(1) articulates the two core 

factors without apparent overlap, and 

CWI does not identity any specific 

considerations that risk being analyzed 

under both factors. Language in the 

regulatory text warning against 

overlapping analysis may therefore 

confuse members of the regulated 

community by priming them to look for 

potential overlapping considerations 

when there are none. The Department 

therefore declines to add CWI’s 

requested language. 

In summary, the economic reality test 

examines the circumstances of the 

whole activity to determine whether an 

individual is in business for him- or 

herself, as opposed to being 

economically deponent on others for 

work. Not all facts or factors are equally 

probative (if they are probative at all) as 


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55Restatement (Second) of Agency § 2(3); see also 

Commun. for Non-Violence v. Reid, 490 U.S. 730, 

751 (1989) (describing ‘‘the hiring party’s right to 

control the manner and means by which the 

product is accomplished’’ as the overarching focus 

of the common law standard). 

to whether, as a matter of economic 

reality, an individual is in business for 

him- or herself. Treating them all as 

equal would not focus the inquiry on 

economic dependence, but rather would 

distort that analysis. In contrast, 

highlighting factors that are more 

probative would sharpen the test’s focus 

on economic dependence. 

The NPRM presented reasoning and 

evidence based on the Department’s 

review of case law indicating that 

control and opportunity factors are more 

probative to whether an individual is in 

business for him- or herself, as opposed 

to being economically dependent. While 

not all commenters agree with this 

approach, commenters who object to it 

have not convinced the Department to 

change its original assessment. The 

Department therefore believes that it is 

appropriate to focus the economic 

reality test on the two core factors that 

are more probative to the test’s ultimate 

inquiry. Such focus appropriately 

guides how factors should be balanced, 

while retaining flexibility in the test. 

F. Proposed Guidance Regarding the 

Primacy of Actual Practice 

Proposed § 795.110 stated that the 

actual practice of the parties involved— 

both of the worker (or workers) at issue 

and of the potential employer—is more 

relevant than what may be contractually 

or theoretically possible. The proposed 

rule explained that this principle is 

derived from the Supreme Court’s 

holding that ‘‘ ‘economic reality’ rather 

than ‘technical concepts’ is to be the test 

of employment’’ under the FLSA. 

Whitaker House, 366 U.S. at 33; see also 

Tony & Susan Alamo, 471 U.S. at 301 

(‘‘The test of employment under the 

[FLSA] is one of ‘economic reality’ ’’ 

(citing Whitaker House, 366 U.S. at 33)). 

Several commenters expressed 

support for proposed § 795.110. For 

example, ATA wrote that ‘‘[t]he general 

principle also is almost black letter 

law—substance is always more 

important than form—under virtually 

every regulation WHD enforces.’’ The 

Center for Workplace Compliance 

described the language as ‘‘consistent 

with historical interpretation of the 

economic reality test by Federal courts 

and DOL.’’ Other commenters 

complimented the proposal with little 

or no further explanation, see NHDA; 

New Jersey Civil Justice Institute; WPI, 

while HR Policy Association urged the 

final rule to go further by entirely 

disregarding the relevance of 

unexercised contractual or theoretical 

possibilities. WFCA supported proposed 

§ 795.110, but asked the Department to 

elaborate in the final rule that ‘‘best 

indicator of the actual practices is 

whether a significant segment of the 

industry has traditionally treated similar 

workers as independent contractors or 

employees.’’ 

No worker advocacy organizations 

specifically commented in support of 

the provision, but several groups, 

including NELA, the Pacific Northwest 

Regional Council of Carpenters, and the 

Public Justice Center, quoted Judge 

Frank Easterbrook’s observation from 

Lauritzen, 835 F.2d at 1545, that ‘‘[t]he 

FLSA is designed to defeat rather than 

implement contractual arrangements.’’ 

The International Brotherhood of 

Teamsters similarly asserted that 

Congress ‘‘chose to define ‘employment’ 

in a manner that would allow the Act 

to be applied flexibly so that employers 

could not simply recalibrate their 

contractual arrangements with workers 

to evade coverage.’’ Finally, NELP and 

32 other organizations quoted Judge 

Learned Hand’s observation from Lehigh 

Valley Coal Co. v. Yensavage, 218 F. 

547 (2d Cir. 1914), cert. denied, 235 U.S. 

705 (1915), that employment statutes 

from the early 20th century were 

intended to ‘‘upset the freedom of 

contract’’ between workers and 

businesses. Id. at 553. 

Some business commenters expressed 

general support for proposed § 795.110, 

but requested edits to discount the 

relevance of voluntary choices on the 

part of an individual worker that 

implicate one or more of the economic 

reality factors described in proposed 

§ 795.105(d), such as choosing to work 

exclusively for one business, accepting 

all available work assignments from the 

business, or declining to negotiate 

prices. See, e.g., American Bakers 

Association; ATA; New Jersey 

Warehousemen & Movers Association 

(NJWMA); NRF; Private Care 

Association; Scopelitis, Garvin, Light, 

Hanson & Feary; U.S. Chamber of 

Commerce (‘‘[T]he Chamber urges the 

Department clarify that so long as a 

business does not take actions to 

foreclose an individual from exercising 

certain rights, that the individual’s 

choice to not exercise those rights does 

not diminish their indicia of 

independence in the relationship.’’). 

Some of these commenters asserted that 

allowing voluntary worker practices to 

influence classification outcomes would 

lead to costly and inefficient business 

decisions. See Dart Transit Company 

(‘‘[T]he practical effect of [proposed 

§ 795.110] is to require independent 

contractors to arbitrarily switch routes 

and carriers . . . simply in order to 

preserve their independent status’’); 

Minnesota Trucking Association (‘‘In 

effect, the motor carrier would have to 

restrict offering to the independent 

owner operator a route both find 

beneficial in order to ensure that the 

independent owner operator performs 

services for other motor carriers.’’). 

Others asserted that considering 

voluntary worker practices would lead 

to classification discrepancies between 

workers with similar contractual 

freedoms. See NRF; SHRM. 

Some business commenters were 

flatly opposed to proposed § 795.110. 

SHRM wrote that ‘‘[a] focus on ‘practice’ 

as opposed to the contractual ‘rights,’ of 

the parties . . . unnecessarily deemphasizes voluntariness of the 

contract itself and places ambiguity over 

parties’ negotiations.’’ The Customized 

Logistics and Delivery Association 

objected that worker classifications 

could turn on voluntary worker 

practices that a business may not know 

about (e.g., whether particular workers 

perform labor for other companies), 

asserting that proposed § 795.110 

‘‘essentially shift[s] the burden of proof 

to the alleged employer to establish a 

worker’s status as an IC’’ and ‘‘could 

force mass reclassifications of ICs for 

motor carriers, and many other 

industries.’’ 

Finally, several commenters 

representing workers, as well as Senator 

Patty Murray and the State AGs, voiced 

opposition to proposed § 795.110 on the 

basis that emphasizing the primacy of 

an alleged employer’s practices would 

establish an employee classification 

standard impermissibly narrower than 

the common law, which evaluates an 

alleged employer’s ‘‘right to control.’’ 55

In this regard, the State AGs compared 

proposed § 795.110 to the Department’s 

interpretation in its recent Joint 

Employer final rule that ‘‘[a] potential 

joint employer must actually exercise— 

directly or indirectly—one or more . . . 

indicia of control to be jointly liable’’ 

(85 FR 2859). Winebrake & Santillo, LLC 

asserted that proposed § 795.110 

conflicts with a statement from a recent 

Third Circuit opinion that ‘‘actual 

control of the manner of work is not 

essential; rather, it is the right to control 

which is determinative,’’ Razak, 951 

F.3d at 145, while Edward. Tuddenham 

commented that ‘‘[a]ll of the cases [the 

Department cited in its NPRM] to 

support the primacy of ‘actual practice’ 

are referring to the actual practices of 

workers and are not discussing analysis 

of employer controls.’’ In rejecting the 

proposed rule’s distinction between a 

potential employer’s contractual 


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56Entirely disregarding unexercised contractual 

rights and authorities would not be consistent with 

the Supreme Court’s instruction in Rutherford Food 

to evaluate ‘‘the circumstances of the whole 

activity.’’ 331 U.S. at 730; see also Mid-Atl. 

Installation, 16 F. App’x at 107 (determining that 

cable installers were independent contractors in 

part because they had a ‘‘right to employ [their 

own] workers’’); Keller, 781 F.3d at 813 (citing as 

relevant ‘‘the fact that Miri never explicitly 

prohibited Keller from performing installation 

services for other companies’’ and finding ‘‘a 

material dispute as to whether Keller could have 

increased his profitability had he improved his 

efficiency or requested more assignments’’). 

57 In this respect, § 795.110’s emphasis on actual 

practice differs from the treatment of control in the 

Department’s partially invalidated Joint Employer 

rule, which provided that ‘‘[a] potential joint 

employer must actually exercise—directly or 

indirectly—one or more . . . indicia of control to 

be jointly liable.’’ 85 FR 2859 (emphasis added). 

58 In a 2004 final rule amending this language, the 

Department rejected commenter arguments that the 

mere existence of a policy permitting improper 

deductions should disqualify an employer from 

claiming the Section 13(a)(1) exemption for salaried 

employees whose earnings and job duties otherwise 

qualify for exemption. ‘‘[Such an] approach . . . 

would provide a windfall to employees who have 

not even arguably been harmed by a ‘policy’ that 

a manager has never applied and may never intend 

to apply[.]’’ 69 FR 22122, 22180. 

59See Commun. for Non-Violence v. Reid, 490 

U.S. 730, 751 (1989) (‘‘In determining whether a 

hired party is an employee under the general 

common law of agency, we consider the hiring 

party’s right to control the manner and means by 

which the product is accomplished.’’) (emphasis 

added). 

authority to control workers and control 

that they actually exercise, Senator 

Murray asserted that contractual 

authority ‘‘provides a potential 

employer an incredible amount of de 

facto control over a worker . . . 

induc[ing] a worker to perform the work 

in the manner the employer prefers, 

suggests, recommends, or hints at, even 

if the employer does not ever command 

it.’’ See also State AGs (‘‘[R]eserved 

authority in an agreement, like the 

looming sword of Damocles, will often 

influence what the parties do[.]’’). 

The Department has carefully 

considered the views and arguments 

expressed by commenters and decided 

to implement § 795.110 as proposed. As 

emphasized in the NPRM, and as the 

plain language of § 795.110 makes clear, 

unexercised powers, rights, and 

freedoms are not irrelevant in 

determining the employment status of 

workers under the economic reality 

test; 56 such possibilities are merely less 

relevant than powers, rights, and 

freedoms which are actually exercised 

under the economic reality test.57

Affording equal relevance to reserved 

control and control that is actually 

exercised—by either party—would 

ignore the Supreme Court’s command to 

focus on the ‘‘reality’’ of the work 

arrangement, Silk, 331 U.S. at 713, 

which places a greater importance on 

what actually happens than what a 

contract suggests may happen. Several 

Federal courts of appeals decisions have 

explicitly made this observation. See, 

e.g., Saleem, 854 F.3d at 142 

(‘‘[P]ursuant to the economic reality test, 

it is not what [Plaintiffs] could have 

done that counts, but as a matter of 

economic reality what they actually do 

that is dispositive.’’) (citations omitted); 

Parrish, 917 F.3d at 387 (‘‘The analysis 

is focused on economic reality, not 

economic hypotheticals.’’); Scantland, 

721 F.3d at 1311 (‘‘It is not significant 

how one ‘could have’ acted under the 

contract terms. The controlling 

economic realities are reflected by the 

way one actually acts.’’ (citations 

omitted)). Moreover, as some 

commenters pointed out, prioritizing 

substance over form is consistent with 

the Department’s general interpretation 

and enforcement of the FLSA. See, e.g., 

29 CFR 541.2 (‘‘A job title alone is 

insufficient to establish the exempt 

status of an employee.’’); 29 CFR 

541.603(a) (providing that employers 

violate the salary basis requirement for 

certain employees exempt under Sec. 

13(a)(1) of the Act only when they 

demonstrate ‘‘an actual practice of 

making improper deductions’’); 58 29 

CFR 778.414 (‘‘[W]hether a contract 

which purports to qualify an employee 

for exemption under section 7(f) meets 

the requirements . . . will in all cases 

depend not merely on the wording of 

the contract but upon the actual practice 

of the parties thereunder.’’). 

The Department disagrees with 

commenters who assert that prioritizing 

the actual practice of the parties 

involved makes the economic reality 

test impermissibly narrower than the 

common law control test. In many 

instances, the actual practices of the 

parties will establish the existence of an 

employment relationship despite what a 

‘‘skillfully devised’’ contract might 

suggest on paper. Silk, 331 U.S. at 715; 

see, e.g., Scantland, 721 F.3d at 1313– 

14 (‘‘Though plaintiffs’ ‘Independent 

Contractor Service Agreements’ 

provided that they could ‘decline any 

work assignments,’ plaintiffs testified 

that they could not reject a route or a 

work order within their route without 

threat of termination or being refused 

work in the following days.’’); Hobbs, 

946 F.3d at 833 (dismissing the fact that 

welders determined to be employees 

‘‘could hypothetically negotiate their 

rate of pay’’). In any event, because the 

ultimate inquiry of the economic reality 

test is ‘‘economic dependence,’’ the test 

ensures coverage over more workers in 

the aggregate than the common law 

control test, notwithstanding its more 

nuanced interpretation of the control 

factor itself. See Silk, 331 U.S. at 716 

(listing ‘‘degrees of control’’ as one of 

several non-dispositive factors in the 

economic reality test) (emphasis added). 

It is true that, under the economic 

reality test, some workers subject to a 

potential employer’s ‘‘right to control’’ 

may nevertheless qualify as bona fide 

independent contractors for other 

reasons. To the extent that this excludes 

some workers who might qualify as 

‘‘employees’’ under a traditional 

common law test,59 this is the logical 

outcome of a multifactor test where ‘‘no 

one [factor] is controlling.’’ Silk, 331 

U.S. at 716; see also, e.g., Selker Bros., 

949 F.2d at 1293 (‘‘It is a wellestablished principle that . . . neither 

the presence nor the absence of any 

particular factor is dispositive.’’). 

Moreover, the Supreme Court arrived at 

precisely this outcome in two of its 

seminal cases applying the economic 

reality test. 

First, in Silk, the Court evaluated the 

employment status of owner-operator 

truck drivers who contracted to perform 

services exclusively for a motor carrier 

company, subject to a ‘‘manual of 

instructions . . . purport[ing] to 

regulate in detail the conduct of the 

truckmen in the performance of their 

duties.’’ 331 U.S. at 709–710. Before 

reaching its own conclusion, the Court 

excerpted an analysis from the appellate 

court below noting that, ‘‘[w]hile many 

provisions of the manual, if strictly 

enforced, would go far to establish an 

employer-employee relationship 

between the Company and its truckmen 

. . . there was evidence to justify the 

[district] court’s disregarding of it,’’ 

including testimony that the manual 

was ‘‘impractical and was not adhered 

to.’’ Id. at 716 n.11 (quoting Greyvan 

Lines v. Harrison, 156 F.2d 412, 415 (7th 

Cir. 1946)). Although the Court 

acknowledged ‘‘cases . . . where driverowners of trucks or wagons have been 

held employees in accident suits at tort’’ 

(under the common law), the Court said 

it ‘‘agree[d] with the decisions below’’ 

that the owner-operator truck drivers 

were independent contractors, as ‘‘the 

total situation, including . . . the 

control exercised . . . marks these 

driver-owners as independent 

contractors.’’ Id. at 718–19 (emphasis 

added). 

The Court in Bartels, even more 

clearly illustrated of how the economic 

reality test’s emphasis on actual practice 

may indicate independent contractor. 

There, the Court found that band 

members were not employees of a 

public dance hall that hired them for 


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60 29 U.S.C. 203(g). See also 83 C.J.S. Suffer 

(1953) (‘‘[T]o suffer work requires no affirmative act 

by a putative employer.’’). 

short-term gigs, despite a contract 

provision stipulating that the dance hall 

‘‘shall at all times have complete control 

of the services which the [band 

members] will render under the 

specifications of this contract.’’ 332 U.S. 

at 128. Again applying the economic 

reality test, the Court noted that a 

worker’s employment status ‘‘was not to 

be determined solely by the idea of 

control which an alleged employer may 

or could exercise over the details of the 

service rendered to his business by the 

worker or workers.’’ Id. at 130 

(emphasis added). While the Court 

made clear that other economic reality 

factors (e.g., skill, permanence, profit) 

indicated that the band members were 

independent contractors, id. at 132, the 

Court implicitly found that the control 

factor did as well, noting that it was the 

band leader (and not the dance hall) 

which ‘‘organizes and trains the band 

. . . [and] selects [its] members.’’ Id. at 

132. In other words, notwithstanding 

the dance hall’s contractual authority to 

‘‘complete[ly] control’’ the band 

members, the actual practice of the 

parties made clear that the band 

members themselves controlled the 

work, as a matter of economic reality. 

Contrary to the argument put forth by 

several worker advocacy commenters, 

the outcome and reasoning of the 

Supreme Court’s decisions in Silk and 

Bartels show that the common law 

control test does not establish an 

irreducible baseline of worker coverage 

for the broader economic reality test 

applied under the FLSA. In other words, 

while the economic reality test is broad 

in the sense that it covers more workers 

as a general matter, it does not 

necessarily include every worker 

considered an employee under the 

common law. 

At the same time, the Department 

disagrees with the interpretation 

suggested by various business 

commenters that only worker practices 

which are affirmatively coerced by a 

potential employer may indicate 

employee status. Such a reading 

conflicts with the definition of 

‘‘employ’’ in section 3(g) of the Act, 

which makes clear that the FLSA was 

intended to cover employers who 

passively ‘‘suffer or permit’’ work from 

individuals.60 Accordingly, courts 

applying the economic reality test have 

not hesitated to consider voluntary 

worker practices where such practices 

indicate economic dependence. See 

Keller, 781 F.3d at 814 (‘‘[A] reasonable 

jury could find that the way that [the 

defendant] scheduled [the worker’s] 

installation appointments made it 

impossible for [the worker] to provide 

installation services for other 

companies.’’). To be sure, the 

Department agrees that coercive 

behavior by a potential employer (e.g., 

vigilant enforcement of a non-compete 

clause, punishing workers for turning 

down available work, etc.) constitutes 

stronger evidence of employment status 

than voluntary worker practices (e.g., 

the mere existence of an exclusive work 

arrangement, the fact that a worker 

rarely turn down available work, etc.), 

but coercive action on the part of the 

potential employer is not a prerequisite 

for such worker practices to have 

import. 

The Department believes that 

commenters’ concerns that proposed 

§ 795.110 will cause workers with 

similar contractual freedoms to be 

classified differently are overstated. 

Consistent with evaluating the ‘‘the 

circumstances of the whole activity’’ in 

a work arrangement, Rutherford Food, 

331 U.S. at 730, courts have often 

considered the rights and practices of 

similarly situated workers affiliated 

with a particular business, arriving at a 

single classification outcome for the 

group of workers at issue. See, e.g., 

Freund, 185 F. App’x. at 784 (finding 

independent contractor status in part 

because ‘‘although Freund did not hire 

any workers, other of Hi-Tech’s 

installers did’’); Express Sixty-Minutes 

Delivery, 161 F.3d at 305 (finding 

independent contractor status in part 

because ‘‘[t]he majority of drivers work 

for Express for a short period of time’’); 

cf. Mr. W Fireworks, 814 F.2d at 1048– 

51 (finding employee status in part 

because ‘‘the overwhelming majority of 

operators did not engage in independent 

advertising’’ and ‘‘the vast majority of 

operators made only minor investments 

in the business’’). Even where 

meaningful factual differences exist 

between workers, courts may separate 

them into multiple groups for separate 

collective analyses instead of making 

individualized determinations. See, e.g., 

Off Duty Police, 915 F.3d at 1055–1062 

(separate collective analyses of ‘‘sworn 

officers’’ and ‘‘nonsworn officers’’ who 

provide security and traffic control 

services); DialAmerica, 757 F.2d at 

1383–88 (separate collective analyses of 

home researchers and distributors). 

Judicial application of the economic 

reality test to groups of workers has 

shown that classification outcomes 

cannot turn on one factor alone. See, 

e.g., Silk, 331 U.S. at 719 (‘‘In one 

instance they haul for a single business, 

in the other for any customer. The 

distinction, though important, is not 

controlling. It is the total situation . . . 

that marks these driver-owners as 

independent contractors.’’). 

In summary, finalized § 795.110’s 

emphasis on the actual practices of the 

parties involved is not a one-way 

ratchet, applying selectively either for or 

against a finding of independent 

contractor status. Instead, as the 

examples in § 795.110 illustrate, the 

principle applies to every potentially 

relevant factor, and can weigh in favor 

of either an employee or independent 

contractor relationship. In some cases, 

the actual practice of the parties 

involved may suggest that the worker or 

workers are employees. See, e.g., 

Sureway Cleaners, 656 F.2d at 1371 

(‘‘[T]he fact that Sureway’s ‘agents’ 

possess, in theory, the power to set 

prices, determine their own hours, and 

advertise to a limited extent on their 

own is overshadowed by the fact that in 

reality the ‘agents’ work the same hours, 

charge the same prices, and rely in the 

main on Sureway for advertising.’’); 

DialAmerica, 757 F.2d at 1387 

(concluding that evidence showing 

workers were not doing similar work for 

any other businesses ‘‘although they 

were free to do so’’ indicates employee 

status). In other cases, it may suggest 

that the worker or workers at issue are 

independent contractors. See Saleem, 

854 F.3d at 143 (concluding that blackcar drivers were independent 

contractors in part because ‘‘many 

Plaintiffs . . . picked up passengers via 

street hail, despite TLC’s (apparently 

under-enforced) prohibition of this 

practice’’); see also Silk, 331 U.S. at 

718–19; Bartels, 332 U.S. at 129. Section 

795.110’s focus on actual practice is a 

neutral interpretive principle, consistent 

with the way courts and the Department 

have long applied the FLSA’s economic 

reality test. Accordingly, and contrary to 

the concerns expressed by some 

commenters, it should not disrupt 

specific industries or result in 

substantial worker reclassifications in 

either direction (i.e., from employee to 

independent contractor status, or vice 

versa). 

G. Other Comments 

Many substantive comments were not 

directed towards a specific provision of 

the proposed rule but rather the rule as 

a whole. These comments addressed the 

following topics: (1) Whether the 

proposed rule would create confusion or 

clarity for the regulated community; (2) 

whether the proposed rule would 

exacerbate or ameliorate 

misclassification of employees; (3) 

whether the rule is consistent with the 

FLSA’s purpose; (4) whether 


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Congressional inaction prohibits this 

rulemaking; and (5) whether the 

Department may depart from its prior 

practice. 

1. Whether the Rulemaking Will Create 

Confusion or Clarity 

Commenters from the business and 

freelance community generally 

expressed the view that the proposed 

rule would improve clarity regarding 

which workers are independent 

contractors versus employees under the 

FLSA. For example, the U.S. Chamber of 

Commerce stated that ‘‘[t]he Proposed 

Rule would provide long-awaited and 

much needed structure and clarity to 

the evaluation of worker relationships 

under the Act.’’ SHRM agreed that 

‘‘[t]he Proposed Rule is necessary to 

provide certainty and consistency to 

businesses and workers.’’ See also CWI; 

WPI; ATA; NRF; National Restaurant 

Association. Freelancers and groups that 

represent them echoed this message, 

with the CPIE, for instance, stating that 

‘‘[w]e believe the proposed guidance 

would provide greater clarity and 

predictability in the application of the 

‘economic realities’ test to independent 

entrepreneurs and their clients.’’ See 

also Fight for Freelancers. Individual 

commenters who identified themselves 

as freelancers or small business owners 

overwhelmingly agreed that the rule 

would improve legal clarity. For 

example, one individual commenter 

who believed that ‘‘independent 

contracting . . . kept [her] family afloat 

when [she] unexpectedly became a 

single mom’’ stated that ‘‘[t]his 

proposed rule is simple to understand 

and provides necessary clarity for both 

employers and individuals like myself 

that want to engage in freelancing.’’ 

Another individual who identified 

himself as a small business owner 

believed that ‘‘[t]he regulations 

proposed seem to provide clarity for 

determining an individual’s status as an 

employee or independent contractor 

under the Fair Labor Standards Act.’’ 

Some government and union 

commenters took the opposite view. The 

State AGs, for instance, asserted that 

‘‘this rule will create confusion, not 

clarity’’ in part because they believe it 

‘‘departs from the statutory text and 

Supreme Court precedent and is 

contrary to established application of 

the economic reality test.’’ FTC 

Commissioner Slaughter expressed 

concern that the proposed rule would 

‘‘create legal confusion around the labor 

exemption to the antitrust laws.’’ The 

AFL–CIO argued that ‘‘the proposal is 

likely to increase rather than decrease 

confusion because it does not clearly 

define ‘an integrated unit of 

production.’ ’’ 

The Department continues to believe 

that the rule will improve clarity 

because it clarifies the meaning of 

economic dependence, which 

determines FLSA employment, and 

aligns the economic reality test to more 

accurately analyze that concept by, 

among other things, highlighting the 

two core factors that are most probative 

to the inquiry. The rule does not depart 

from the statutory text, which courts 

have interpreted to define FLSA 

employment based on the concept of 

economic dependence on which this 

rule focuses. Nor does the rule depart 

from any Supreme Court precedent 

because it continues to consider the 

circumstances of the activity as a whole 

to analyze whether workers, as a matter 

of economic reality, depend on another 

business for work, or are in business for 

themselves. The Department further 

disagrees with the State AGs that the 

rule departs from the ‘‘established 

application of the economic reality 

test.’’ The final rule takes into account 

facts and factors that have historically 

been part of the economic reality test, 

and decades of appellate decisions 

indicating that the two core factors 

frequently align with the ultimate 

determination of economic dependence 

or lack thereof. See 85 FR 60619–21. As 

one comment stated, the rulemaking 

‘‘synthesizes previous understandings of 

the independent contractor rule,’’ as 

opposed to departing from them. See 

Farren and Mitchell. 

The Department does not believe this 

final rule will cause confusion regarding 

the labor exemption to antitrust laws 

because, as explained by FTC 

Commissioner Slaughter, that 

exemption is governed ‘‘[u]nder the 

Clayton Act and the Norris-La Guardia 

Act.’’ In contrast, this rule’s application 

is limited to the FLSA, and therefore, 

would not affect the labor exemption to 

antitrust laws established by other 

statutes. Finally, for reasons explained 

in the NPRM and this preamble, the 

Department believes this rule’s 

articulation of the ‘‘integrated unit’’ is 

clearer than the prior ‘‘integral part’’ 

articulation. For added clarity, the 

Department added a pair of examples in 

§ 795.115 to further illustrate 

application of the ‘‘integrated unit’’ 

factor. 

For these reasons, the Department 

believes the final rule will result in 

greater clarity. 

2. Whether the Rulemaking Exacerbates 

or Ameliorates Misclassification 

Many commenters expressed concern 

that the proposed rule would exacerbate 

the misclassification of employees as 

independent contractors. See, e.g., Equal 

Justice Center; Employee Rights Center; 

NELP; State AGs; TRLA. According to 

these commenters, the proposed rule 

would make it easier for an 

unscrupulous employer to classify its 

employees as independent contractors, 

and they cite statistics that purport to 

show high rates of misclassification in 

support of that contention. Several other 

commenters took the opposite position 

and asserted, for example, that 

‘‘[c]larifying the application of the test 

for independent contractor status will 

promote compliance with labor 

standards under the FLSA and, in turn, 

reduce worker misclassification.’’ 

Opportunity Solutions Project (OSP); 

see also, e.g., TCA (‘‘[t]he increased 

clarity provided by the [proposed rule] 

would likely lead to reduced 

misclassification.’’); IAW (‘‘This rule 

will clear up misclassifications’’); 

Financial Services Institute (‘‘we agree 

that it will reduce worker 

misclassification and litigation’’). These 

commenters also presented reports that 

dispute the widespread occurrence of 

misclassification. See, e.g. CWI; U.S. 

Chamber of Commerce; WPI. 

FLSA employee versus independent 

contractor status is determined in terms 

of economic dependence. 

Misclassification occurs when an 

individual who is economically 

dependent on a business is classified by 

that business as an independent 

contractor and treated as such. This can 

occur inadvertently because the 

business misunderstands the concept of 

economic dependence or incorrectly 

analyzes factors to assess the concept. It 

can also occur intentionally. This final 

rule clearly defines economic 

dependence and explains how to assess 

facts and factors to evaluate whether 

that dependence exists. It discards 

misleading and confusing 

interpretations of that concept 

developed over the years and 

emphasizes the essential aspects. A 

clearer test means more businesses will 

better understand their obligations 

under the FLSA and thereby 

inadvertently misclassify fewer workers. 

As one commenter who identified 

himself as a small business owner 

explained: ‘‘We want to comply [with 

the FLSA] but we need guidance that 

allows us to know how to comply.’’ A 

clearer test also means more workers 

will understand their rights under the 

FLSA and thereby will be better 

positioned to combat intentional 

misclassification through, for example, 

private litigation or complaints to the 

Department. Unscrupulous employers 


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61NELA specifically urged the Department to 

adopt the ‘‘ABC’’ test to determine whether a 

worker is an independent contractor or an 

employee under the FLSA. The Regulatory 

Alternative discussion at Section VI(G) provide 

further explanation why the Department is not 

adopting that test. 

may also be deterred from intentional 

misclassification in the first place if 

workers better understand their legal 

rights. For these reasons, the 

Department believes the final rule is 

likely to reduce both inadvertent and 

intentional FLSA misclassification. 

While several commenters asserted 

that the proposed rule will facilitate 

misclassification, the Department does 

not agree. The Department’s final rule 

makes clear that a business may classify 

a worker as an independent contractor 

with greater confidence if the worker 

has control over key aspects of the work 

and a meaningful opportunity for profit 

or loss based on initiative or investment. 

Except in unusual cases, a worker who 

enjoys substantial control over the work 

and has opportunity for profit in 

abundant measures is, as a matter of 

economic reality, in business for him- or 

herself, and thus properly classified as 

an independent contractor. The rule 

thus makes it easier for a business and 

its workers to structure their work 

arrangements to create bona fide 

independent contractor relationships. 

But that effect of the final rule will help 

avoid misclassification, not encourage 

it. 

As discussed in greater detail in the 

RIA at Section VI(D)(6), the Department 

has concerns regarding the reliability of 

statistics cited by commenters regarding 

the prevalence of misclassification. 

Even assuming commenters’ statistics 

are accurate, however, they would 

merely estimate the current rate of 

misclassification rather than how that 

rate would change as a result of this 

rule. Insofar as the final rule will reduce 

misclassification, these statistics make 

this rulemaking even more urgent. 

For the above reasons, the Department 

believes this rule will ameliorate rather 

than exacerbate misclassification of 

employees under the FLSA. 

3. Whether the Rulemaking Is 

Consistent With the FLSA’s Remedial 

Purpose 

A number of commenters asserted 

that this rule ‘‘conflicts with the FLSA’s 

remedial purposes of protecting 

workers.’’ State AGs; see also, e.g., 

Pacific Northwest Council of Carpenters 

(‘‘the Proposed Rule . . . is contrary to 

the statutory definitions and remedial 

purpose of the FLSA’’). NELP, for 

instance, stated that ‘‘DOL’s proposed 

test would leave behind workers in high 

growth sectors with high rates of wage 

theft, contrary to the purposes of the 

FLSA.’’ And NELA indicated that, 

because ‘‘the FLSA is a remedial 

statute’’ its coverage should be 

construed liberally to adopt a standard 

for employment that is even broader 

than economic dependence.61

Commenters that supported the 

proposed rule pointed that the FLSA is 

not intended to cover all workers and 

that ‘‘Congress intended to cut off [the 

FLSA’s] coverage at a certain point to 

preserve the freedom of workers to 

operate as independent contractors.’’ 

Scalia School; see also WPI (‘‘Nothing in 

the text or legislative history of any 

Federal employment law indicates that 

Congress intended to supplant or 

displace independent work and require 

instead for all workers to be 

employees.’’). 

The Supreme Court has cautioned 

against the ‘‘flawed premise that the 

FLSA ‘pursues’ its remedial purpose ‘at 

all costs’ ’’ when interpreting the Act. 

Encino, 138 S. Ct. at 1142. The Encino 

II Court rejected the principle that 

FLSA’s remedial purpose required 

exemptions to be narrowly construed, 

id, and courts of appeal have followed 

that logic to reject the corollary 

principle, articulated above by NELA, 

that the Act’s remedial purpose requires 

its coverage to be construed broadly. See 

Sec’y United States Dep’t of Labor v. 

Bristol Excavating, Inc., 935 F.3d 122, 

135 (3d Cir. 2019) (rejecting broad 

reading of the FLSA based its remedial 

purpose); Diaz v. Longcore, 751 F. 

App’x 755, 758 (6th Cir. 2018) (same). 

Rather, ‘‘ ‘a fair reading’ of the FLSA, 

neither narrow nor broad, is what is 

called for.’’ Bristol, 935 F.3d at 135 

(quoting Encino, 138 S. Ct. at 1142); 

Diaz, 751 F. App’x at 758 (‘‘We must 

instead give the FLSA a ‘fair’ 

interpretation.’’). 

‘‘The principal congressional purpose 

in enacting the Fair Labor Standards Act 

of 1938 was to protect all covered 

workers from substandard wages and 

oppressive working hours.’’ Barrentine 

v. Arkansas-Best Freight Sys., Inc., 450 

U.S. 728, 739 (1981) (emphasis added). 

The Supreme Court, however, has long 

recognized held that the FLSA ‘‘was 

obviously not intended to stamp all 

persons as employees.’’ Portland 

Terminal Co., 330 U.S. at 152. As the 

State AGs stated, the ‘‘the FLSA must be 

interpreted with its ‘remedial and 

humanitarian purpose . . . purpose’ in 

mind to protect ‘those who sacrifices a 

full measure of their freedom and 

talents to the use and profit of others.’ ’’ 

State AGs (quoting Tenn. Coal, Iron. R. 

Co. v. Muscoda Local No. 123, 321 U.S. 

590, 598 (1944)). Workers who are 

economically dependent on an 

employer for work have sacrificed 

‘‘freedom and talents to the use of 

profits of others,’’ and therefore are 

covered by the Act as employees. But 

independent contractors use their 

‘‘freedom and talents’’ to operate their 

own businesses, and thus fall outside of 

the FLSA’s coverage. See Saleem, 854 

F.3d 131, 139–40 (2d Cir. 2017) (noting 

that independent contractors are 

separate from employees in the context 

of the FLSA); Karlson, 860 F.3d 1089, 

1092 (8th Cir. 2017) (‘‘FLSA wage and 

hour requirements do not apply to true 

independent contractors.’’); Scantland, 

721 F.3d at 1311 (‘‘[The Act’s] ‘broad’ 

definitions do not, however, bring 

‘independent contractors’ within the 

FLSA’s ambit.’’); Hopkins, 545 F.3d at 

342 (observing that the ‘‘FLSA applies 

to employees but not to independent 

contractors’’). 

The Department believes the line 

between economically dependent 

workers who are covered by the FLSA 

and independent contractors who are 

not comports with the Act’s purpose to 

‘‘protect all covered workers from 

substandard wages and oppressive 

working hours.’’ Barrentine, 450 U.S. at 

739. Independent contractors who are in 

business for themselves do not need 

protection against ‘‘oppressive working 

hours’’ because they are not 

economically dependent on any 

employer who could oppress them. Nor 

do they need protection from 

‘‘substandard wages’’ because they are 

not economically dependent on an 

employer that sets wages. Forcing 

workers who are in business of 

themselves into the FLSA’s coverage 

would not protect them, and would 

instead unduly restrict their ability to 

operate their own businesses. Indeed, 

numerous individuals who identified as 

freelancers or independent contractors 

commented that being classified as an 

employee would undermine their ability 

to operate their own business. For 

example, one freelance translator 

lamented that ‘‘many of my clients 

became unwilling to work with me’’ 

when a state law required her to be 

classified as clients’ employee. Another 

commenter identified himself ‘‘[a]s a 

self employed professional [who] do[es] 

NOT want to be forced into 

employment.’’ As a final illustrative 

example, another commenter stated that 

‘‘I have no desire to be an employee 

. . . . If I was required to be an 

employee, I would no longer be able to 

make money for my family from my 

home on my own schedule.’’ 

The Supreme Court has explained 

that the FLSA’s ‘‘exemptions are as 

much a part of the FLSA’s purpose as 


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1208 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

the [Act’s] requirement[s].’’ Encino, 138 

S. Ct. at 1134. By the same logic, 

respecting the independence of workers 

whom the FLSA does not cover is as 

much a part of the Act’s purpose as 

extending the Act’s coverage to workers 

who need its protection. Denying FLSA 

coverage to workers who are 

economically dependent on an 

employer for work would result in 

workers loosing needed protection 

‘‘from substandard wages and 

oppressive working hours.’’ Barrentine, 

450 U.S. at 739. But extending the Act’s 

coverage to workers who, as a matter of 

economic reality, are in business for 

themselves would unduly restrict 

independent workers who neither need 

nor benefit from the Act’s provisions. 

This rule sharpens the distinction 

between these two categories of worker 

and thereby furthers the Act’s purpose 

to protect employee who need 

protection without burdening 

independent contractors who do not. 

4. Whether Congressional Inaction 

Prohibits This Rulemaking 

The American Federation of State, 

County, and Municipal Employees, 

AFL–CIO (AFSCME) asserted that, 

‘‘[b]ecause Congress has legislatively 

ratified the existing six-factor Economic 

Reality test, the Secretary and 

Administrator are powerless to alter the 

standard. This also means the Proposed 

Rule would fail the first step of the 

Chevron deference analysis and would 

be entitled to no deference by the 

courts.’’ According to AFSCME, ‘‘when 

Congress re-enacts a statute without 

change, it is presumed to be aware of 

administrative and judicial 

interpretation of that statute and to have 

adopted those interpretations.’’ Based 

on this principle, AFSCME reasoned 

that, because Congress did not revise the 

definition of ‘‘employ’’ when it 

amended the FLSA in 1966, it must 

have adopted the ‘‘integrated unit of 

production’’ factor articulated in 

Rutherford Food, 331. U.S. 730. 

Additionally, AFSCME asserted that 

Congress’s 1983 decision to adopt the 

FLSA’s definition of ‘‘employ’’ without 

revision in MSPA indicates that 

Congress implicitly adopted the ‘‘sixfactor test [that] was well embedded as 

the interpretation of the FLSA’s 

‘employ.’ ’’ 

AFSCME’s ratification argument is 

based entirely on the fact that Congress 

has not amended the FLSA’s definition 

of ‘‘employ.’’ The Supreme Court, 

however, has ‘‘criticized . . . reliance 

on congressional inaction’’ as a tool of 

statutory interpretation, cautioning that, 

‘‘[a]s a general matter . . . these 

arguments deserve little weight in the 

interpretive process.’’ Central Bank of 

Denver, N.A. v. First Interstate Bank of 

Denver, N. A., 511 U.S. 164, 187 (1994). 

‘‘And when . . . Congress has not 

comprehensively revised a statutory 

scheme but has made only isolated 

amendments, [the Court has] spoken 

more bluntly: ‘It is impossible to assert 

with any degree of assurance that 

congressional failure to act represents 

affirmative congressional approval of 

the Court’s statutory interpretation.’ ’’ 

Alexander v. Sandoval, 532 U.S. 275, 

292, (2001) (quoting Patterson v. 

McLean Credit Union, 491 U.S. 164, 175 

n.1 (1989)). Congress has not 

‘‘comprehensively revised’’ the Act’s 

statutory scheme in a manner that 

would indicate Congressional approval 

of a judicially created six-factor test as 

the standard for FLSA employment. 

Even if some insight could be gleaned 

from Congressional inaction, that 

insight would not support ratifying a 

specific and definitive six-factor test 

because there has never been a uniform 

test for Congress to ratify. The Supreme 

Court has never articulated a six-factor 

test, and courts of appeals articulate the 

test differently. As discussed earlier, the 

Second Circuit combines two of the 

factors. The Fifth Circuit omits one 

factor, while the remaining circuits use 

a sixth, ‘‘integral part’’ factor that 

departs from the Supreme Court’s 

consideration of ‘‘integrated unit of 

production.’’ Some circuits analyze a 

‘‘skill and initiative’’ factor, while 

others consider just ‘‘skill required.’’ 

Some circuits analyze the investment 

factor by comparing the dollar value of 

the worker’s investment against that of 

the hiring entity, while others analyze 

whether the worker’s investment creates 

opportunities for profit or loss. Simply 

put, there is no single test that Congress 

could have impliedly ratified, nor did 

AFSCME suggest one. 

For these reasons, Congress’s inaction 

does not demonstrate that it ratified a 

specific six-factor economic reality test. 

5. Whether the Rulemaking Improperly 

Departs From Prior Practice 

Several commenters, including NELA, 

contended that the proposed rule would 

be an improper departure from the 

Department’s prior practice. The rule is 

consistent with the Department’s prior 

position that the ultimate inquiry for 

determining employee versus 

independent contractor status under the 

FLSA is whether an individual is, as a 

matter of economic reality, 

economically dependent on another for 

work or is instead in business for himor herself. The rule is further consistent 

with the Department’s longstanding 

position that all economic reality factors 

should be analyzed when answering 

that ultimate inquiry. 

The Department acknowledges that 

the rule’s focus on two core factors that 

are most probative to that ultimate 

inquiry is different from how the 

Department articulated the economic 

reality test in the past. ‘‘Agencies are 

free to change their existing policies as 

long as they provide a reasoned 

explanation for the change.’’ Encino 

Motorcars, LLC v. Navarro, 136 S. Ct. 

2117, 2125 (2016). The Department has 

explained its reasoning for focusing the 

economic reality test on two core factors 

throughout the NPRM and this 

preamble. The Department further 

acknowledges that the rule lists 

economic reality factors in § 795.105(d) 

that correspond with how the 

Department has articulated those factors 

in the past, with a few modifications. 

The Department explained its reasons 

for these modifications in the NPRM 

and in this preamble. This rule does not 

improperly depart from the 

Department’s prior positions. 

H. Examples 

As discussed above, many 

commenters requested that the 

regulatory text contain examples of how 

the economic reality test would apply in 

the context of their specific industries or 

practices. The Department, however, 

prefers to adopt generally applicable 

principles as opposed to attempting to 

provide guidance for every potential 

scenario. The later approach would 

require the regulation be drafted as an 

exhaustive treatise that is neither 

accessible nor helpful for most members 

of the regulated community. It would 

also invariably omit many important 

types of circumstances and be more 

difficult to adapt to future industries 

and practices that neither the 

Department nor commenters could have 

conceived. 

While the Department cannot provide 

examples for every conceivable 

scenario, it is adding § 795.115 to 

provide six illustrative examples that 

involve a variety of industries and 

specific facts. Due to the complexities of 

balancing multiple factors that 

encompass countless facts that are part 

of the totality of the circumstances, the 

Department does not believe it would be 

helpful to provide examples that make 

conclusions regarding workers’ ultimate 

classifications. Rather, each illustrative 

example focuses on the classification 

favored by a specific economic reality 

factor within the context of the factspecific scenario. The first example 

concerns the control factor in the 

context of the long-haul transportation 

industry. The second example concerns 


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62See 58 FR 51735 (Sept. 30, 1993). 

63The entirety of the estimated costs from this 

deregulatory action, which exceed the $100 million 

threshold and relate strictly to familiarization, fall 

in the first year alone. The Department’s Regulatory 

Impact Analysis further explains that these one-year 

costs are more than offset by continuing annual 

cost-savings of $495.8 million per year, accruing to 

the same parties that face the familiarization costs. 

the opportunity factor in the context of 

the gig economy. The third example 

concerns the opportunity factor in the 

context of the construction industry and 

clarifies the concept of economic 

dependence. The fourth example 

concerns the permanence factor within 

the context of a seasonal hospitality 

industry. The fifth example concerns 

the reframed ‘‘integrated unit’’ factor 

within the context of the journalism 

industry. The sixth example also 

concerns the new ‘‘integrated unit’’ 

factor within the context of the 

journalism industry and is designed to 

work with the fifth example to elucidate 

the distinction between when this factor 

favors classification as an employee 

versus independent contractor. 

I. Severability 

The Department proposed to include 

a severability provision in part 795 so 

that, if one or more of the provisions of 

part 795 is held invalid or stayed 

pending further agency action, the 

remaining provisions would remain 

effective and operative. The Department 

did not receive any comments on this 

provision, and finalizes it as proposed. 

J. Amendments to Existing Regulatory 

Provisions at §§ 780.330(b) and 

788.16(a) 

Finally, in addition to the proposed 

addition of part 795, the Department 

proposed to amend existing regulatory 

provisions addressing independent 

contractor status under the FLSA in 

narrower contexts at 29 CFR 780.330(b) 

(tenants and sharecroppers) and 29 CFR 

788.16(a) (certain forestry and logging 

workers). Specifically, the Department 

proposed to replace descriptions of the 

six economic reality factors WHD has 

historically used to evaluate 

independent contractor status under the 

FLSA with a cross-reference to the 

guidance provided in new part 795. 

While some commenters invoked the 

existing provisions at §§ 780.330(b) and 

788.16(a) to justify opposition to 

proposed part 795, the Department did 

not receive any commenter feedback 

regarding the proposed amendment of 

these provisions. Accordingly, the 

Department finalizes amendments to 

these provisions as proposed. 

V. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA), 44 U.S.C. 3501 et seq., and its 

attendant regulations, 5 CFR part 1320, 

require the Department to consider the 

agency’s need for its information 

collections, their practical utility, the 

impact of paperwork and other 

information collection burdens imposed 

on the public, and how to minimize 

those burdens. In the NPRM, the 

Department invited public comment on 

its determination that the proposal did 

not contain a collection of information 

subject to OMB approval under the 

PRA. A few commenters, while not 

referencing the PRA directly, discussed 

records in their public comments. 

However, this was merely to note 

agreement that section 11 of the FLSA 

does not require the keeping of records 

regarding workers who are independent 

contractors. This final rule does not 

contain a collection of information 

subject to OMB approval under the 

PRA. 

VI. Executive Order 12866, Regulatory 

Planning and Review; and Executive 

Order 13563, Improved Regulation and 

Regulatory Review 

A. Introduction 

Under Executive Order 12866, OMB’s 

Office of Information and Regulatory 

Affairs determines whether a regulatory 

action is significant and, therefore, 

subject to the requirements of the 

Executive Order and OMB review.62

Section 3(f) of Executive Order 12866 

defines a ‘‘significant regulatory action’’ 

as a regulatory action that is likely to 

result in a rule that may: (1) Have an 

annual effect on the economy of $100 

million or more, or adversely affect in 

a material way a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

state, local or tribal governments or 

communities (also referred to as 

economically significant); (2) create 

serious inconsistency or otherwise 

interfere with an action taken or 

planned by another agency; (3) 

materially alter the budgetary impact of 

entitlements, grants, user fees or loan 

programs or the rights and obligations of 

recipients thereof; or (4) raise novel 

legal or policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. Because the annual effect of this 

rule is estimated to be greater than $100 

million, this rule will be economically 

significant under section 3(f) of 

Executive Order 12866.63

Executive Order 13563 directs 

agencies to, among other things, propose 

or adopt a regulation only upon a 

reasoned determination that its benefits 

justify its costs; that it is tailored to 

impose the least burden on society, 

consistent with obtaining the regulatory 

objectives; and that, in choosing among 

alternative regulatory approaches, the 

agency has selected those approaches 

that maximize net benefits. Executive 

Order 13563 recognizes that some costs 

and benefits are difficult to quantify and 

provides that, when appropriate and 

permitted by law, agencies may 

consider and discuss qualitatively 

values that are difficult or impossible to 

quantify, including equity, human 

dignity, fairness, and distributive 

impacts. 

B. Overview of Analysis 

The Department believes this rule is 

likely to improve the welfare of both 

workers and businesses on the whole. 

With respect to businesses, the 

Department believes that the improved 

clarity offered by the rule will increase 

the efficiency of the labor market, 

allowing businesses to be more 

productive and decreasing their 

litigation burden. With respect to 

workers, broadly speaking, this rule is 

likely to have four categories of 

potential effects. 

First, this rulemaking makes it easier 

for the millions of individuals who 

currently work as independent 

contractors and those who hire them to 

comply with the law. See Farren and 

Mitchell (‘‘The proposed rule will likely 

reduce the cost of complying with the 

relevant Federal regulations.’’). 

Compliance cost savings will be shared 

between the independent contractors 

and businesses for which they work. Id. 

(‘‘labor regulations are generally paid for 

by reductions in workers’ total 

compensation’’). 

Second, as explained above, the legal 

clarity from this rule is likely to reduce 

occurrences of misclassification by 

enabling firms and workers to better 

understand their respective obligations 

and rights under the FLSA. The 

Department agrees with commenters 

that misclassification harms workers 

and believes this rule will reduce those 

harms by facilitating compliance. 

Third, legal clarity may encourage 

firms to create independent contractor 

arrangements for roles that did not 

previously exist, which may attract 

workers who otherwise would not work 

in that field. Such job creation 

unambiguously benefits workers and 

firms alike. See Dr. Liya Palagashvili 

(‘‘[W]e got the impression from our 

interviews that the primary concern for 

startups in terms of labor regulation or 

policy is mostly with regulation of 

independent contractors.’’), and Fuller 

et al. (‘‘[M]ore than two-thirds of 

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64 Joseph B. Fuller, et al., Rethinking the OnDemand Workforce, Harvard Business Review (Oct. 

20, 2020). 

65Section 795.105(c) indicates that a worker who 

lacks both control and opportunity is most likely an 

employee. As such, the Department believes this 

rule would discourage employers from converting 

such workers from employee to independent 

contractor status. Section 795.105(c) would not give 

an employer sufficient confidence that it could 

change the classification of a worker who has only 

control but not opportunity, or vice versa. 

66The Department notes that the final rule does 

not, by its operation, change the classification of 

any employee. Notwithstanding the assertions of 

several commentators, as explained throughout the 

analysis, the rule does not narrow the definition of 

who is an employee under the FLSA. 

67For greater discussion on this and other points 

in this summary, please see Section XXXX on Job 

Conversion. 

honors BAs] who drop out of the 

workforce would not have done so if 

they’d had access to more-flexible job 

arrangements.’’).64

Fourth, as a result of the improved 

clarity of the rule, businesses might 

convert existing positions from 

employee to independent contractor. 

This rule provides the most legal 

certainty to employers classifying a 

worker as an independent contractor if 

the worker substantially controls the 

work and has a meaningful opportunity 

for profit or loss based on initiative or 

investment. As such, a job conversion 

attributable to the legal clarity provided 

by this rule is likely to satisfy the 

control and opportunity criteria.65

Businesses could reclassify existing 

employees as independent contractors 

by modifying their working relationship 

under the criteria of this rule, and 

would only be expected to do so upon 

determination that the clarity provided 

by this rule materially shifts the balance 

of tradeoffs. Business could also 

reclassify positions because the 

increased clarity of the rule confirms 

that their workers are actually already 

effectively independent contractors 

because their workers have substantial 

control over the work and have an 

opportunity for profit.66 Any benefit to 

businesses of modified classifications 

would need to outweigh the costs, 

including any autonomy they cede to 

workers in such arrangements and any 

costs associated with implementation or 

modifying the classification itself, and 

such a relationship would need to be 

compatible with their business models. 

Further, generally speaking, workers 

have a choice of whether to agree to the 

new independent contractor 

arrangement. The overall effect of job 

conversion on workers is ambiguous 

and could vary from worker to worker, 

as discussed in more detail in section 

VI(D)(7) below. Impacts resulting from 

litigation avoidance due to increased 

clarity are discussed in section VI(F)(2). 

The Department did not attempt to 

quantify all aspects of these four 

categories of potential impacts. In 

particular, the Department believes that 

significant uncertainty surrounds any 

attempt to quantify the number or 

nature of new independent contractor 

relationships that could arise as a result 

of this rule. Although the Department 

assumes that there will be an increase 

in the number of independent 

contracting relationships, the 

Department did not attempt to put a 

specific number on this figure and did 

not attempt to estimate how new 

independent contractors might differ 

from existing independent contractors. 

The Department is uncertain with 

respect to several key questions, 

including how many new workers will 

be added and what their characteristics 

will be, how many existing employee 

relationships may be converted to 

independent contractor status, and 

which industries, type or sizes of 

employers would be most impacted. 

Absent these data, the Department is not 

well positioned to generate a 

constructive estimate or model of 

impact on the change in independent 

contracting relationships due to the 

rule. Notwithstanding, the Department 

quantified certain other impacts 

associated with the final rule, including 

those to current independent 

contractors and businesses where 

sufficient data and theory afforded 

greater confidence in the resulting 

estimates. 

Regarding the employees who may be 

negatively impacted by this rule, the 

Department has ascertained certain 

characteristics that it expects will be 

representative across this group. This 

rule provides a sharpening of the 

economic realities test, which is a 

marginal change that may impact firms’ 

assessment of legal risk, leading to an 

increased chance that some employers 

will choose to reclassify certain 

positions from employee to independent 

contractor relationships. Because this 

analysis attempts to quantify the 

marginal impacts of this rule, if the only 

change is increased legal clarity, any 

resulting change in classification will 

most likely be limited to workers who 

already possess characteristics 

associated with independent contractor 

status, including control and 

opportunity for profit or loss.67 Due to 

the customary negotiation between 

firms and workers, most workers whose 

positions are converted will be in a 

position to influence the tradeoffs 

between employee and independent 

contractor status. The one group of 

workers for whom these assumptions 

may not apply is those workers paid the 

minimum wage, and whose positions 

already resemble characteristics of 

independent contractors. Workers 

earning the minimum wage may lack 

the bargaining power to fully offset the 

adverse effects triggered by the job 

conversion; however, independent 

contractor status often carries 

flexibilities that may further offset some 

of these effects, albeit non-monetarily. 

Further, on one hand, these workers 

likely do not have extensive benefits 

coverage, but on the other hand, they 

may qualify for access to benefits from 

other means. There are approximately 

370,000 workers over the age of 19 who 

earn the minimum wage, which 

represents 0.24 percent of the 

workforce. It is unclear how many of 

these jobs could be converted to 

independent contractor status without 

material modifications to the position or 

substantive negotiation on overall 

compensation, but it is not likely to be 

many. Further, many of these workers 

may have access to health insurance 

coverage via a spouse or partner, a 

parent, or a government program 

(Medicaid, Medicare, Tricare, etc.). For 

these reasons, the Department does not 

expect there to be many current 

employees whose positions are 

converted to independent contractor 

relationships without meaningful ability 

to influence the terms of the new 

position in a way that mitigates 

deleterious impacts of the resulting 

tradeoffs. 

The Department estimates there were 

10.6 million workers who worked at any 

given time as independent contractors 

as their primary jobs in the United 

States in 2017 (6.9 percent of all 

workers), the most recent year of data 

available. Including independent 

contracting on secondary jobs results in 

an estimate of 18.9 million independent 

contractors (12.3 percent of all workers). 

The Department discusses other studies 

estimating the total number of 

independent contractors, ranging from 

6.1 percent to 14.1 percent of workers 

(see Table 2 in VI.C.2). Due to 

uncertainties regarding magnitude and 

other factors, the Department has not 

quantified the potential change to the 

aggregate number of independent 

contractors that may occur as a result of 

this rule. Furthermore, the Department’s 

analysis relies on data collected prior to 

2020, which reflects the state of the 

economy prior to the COVID–19 

pandemic. The Department 

acknowledges that data on independent 

contractors could look different during 

the pandemic and following its 


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68Recent studies and news reports suggest that 

more individuals are working under freelance or 

independent contractor arrangements during the 

pandemic. See, e.g., Press Release, New Upword 

Study Finds 36% of the U.S. Workforce Freelance 

Amid the COVID–19 Pandemic, Sep. 15, 2020, 

available at https://www.upwork.com/press/ 

releases/new-upwork-study-finds-36-of-the-usworkforce-freelance-amid-the-covid-19-pandemic; 

Kim Mackrael, In the Covid Economy, Laid-Off 

Employees become New Entrepreneurs, Wall Street 

Journal, Nov. 18, 2020; Uri Berliner, Jobs in the 

Pandemic: More Are Freelance and may stay that 

way forever, NPR, Sep. 16, 2020; Jon Younger, A 

New Payoneer Report Shows Covid 19 is 

Accelerating Freelance Growth, Forbes, Sep. 1., 

2020. 

69 Discount rates are directed by OMB. See 

Circular A–4, OMB (Sept. 17, 2003). 

70 $332.9 million¥$17.4 million = $315.5 

million. Per OMB guidelines, Executive Order 

13771 data is represented in 2016 dollars, inflationadjusted for when the rule will take effect. 

71Bureau of Labor Statistics, ‘‘Contingent and 

Alternative Employment Arrangements—May 

2017,’’ USDL–18–0942 (June 7, 2018), https://

www.bls.gov/news.release/pdf/conemp.pdf. 

72The variables used are PES8IC=1 for selfemployed and PES7=1 for other workers. 

economic effects, but does not yet have 

information to determine how the 

number of independent contractors 

could change nor whether these changes 

would be lasting or a near term market 

distortion.68

The Department estimates regulatory 

familiarization costs to be $370.9 

million in the first year. The Department 

estimates cost savings due to increased 

clarity to be $447.1 million per year, 

and cost savings due to reduced 

litigation to be $48.7 million per year. 

This results in a 10-year annualized net 

cost savings of $452.4 million using a 3 

percent discount rate and $443.0 

million using a 7 percent discount 

rate.69 For purposes of Executive Order 

13771, the Department calculated the 

difference between the total cost savings 

and the total costs in $2016, discounted 

over a perpetual time horizon using a 7 

percent discount rate beginning in 2021 

when the rule will take effect. This 

results in an annualized net cost savings 

over a perpetual time horizon of $315.5 

million.70 Other anticipated costs, 

benefits, and cost savings are discussed 

qualitatively. 

TABLE 1—SUMMARY OF RULE IMPACTS

[$2019 Millions] 

Impact Year 1 Years 2–10 

Annualized values a

7% Discount 3% Discount 

Regulatory Familiarization Costs: 

Establishments ......................................................................................... $152.3 $0.0 $21.7 $17.9 

Independent Contractors .......................................................................... 218.6 0.0 31.1 25.6 

Total ................................................................................................... 370.9 0.0 52.8 43.5 

Cost Savings from Increased Clarity: 

Employers ................................................................................................. 369.0 369.0 369.0 369.0 

Independent Contractors .......................................................................... 78.1 78.1 78.1 78.1 

Total ................................................................................................... 447.1 447.1 447.1 447.1

Cost Savings from Reduced Litigation ............................................................ 48.7 48.7 48.7 48.7 

Total Cost Savings .......................................................................................... 495.8 495.8 495.8 495.8 

Net Cost Savings (Cost Savings—Costs) ....................................................... 125.0 495.8 443.0 452.4 

aAnnualized over 10-years. 

C. Independent Contractors: Size and 

Demographics 

The Department extrapolated from 

U.S. Census Bureau data to estimate that 

there are 15.6 to 22.1 million 

individuals who work as independent 

contractors as either a primary or 

secondary job. This estimated figure 

could be higher or lower depending on 

different data sources and 

methodologies discussed below. The 

Department used the median of the 

above range, 18.9 million, for its 

estimates to avoid overestimation by 

accounting for a number of criteria, 

which are presented in this section. 

1. Current Number of Independent 

Contractors 

The Department estimated the 

number of independent contractors. 

There are a variety of estimates of the 

number of independent contractors 

spanning a wide range depending on 

methodologies and how the population 

is defined. The Department believes that 

the Current Population Survey (CPS) 

Contingent Worker Supplement (CWS) 

offers an appropriate lower bound for 

the number of independent contractors; 

however, there are potential biases in 

these data that will be noted. 

Additionally, estimates from other 

sources will be presented to 

demonstrate the potential range. 

The U.S. Census Bureau conducts the 

CPS and it is published monthly by the 

Bureau of Labor Statistics (BLS). The 

sample includes approximately 60,000 

households and is nationally 

representative. Periodically since 1995, 

and most recently in 2017, the CPS has 

included a supplement to the May 

survey to collect data on contingent and 

alternative employment arrangements. 

Based on the CWS, there were 10.6 

million independent contractors in 

2017, amounting to 6.9 percent of 

workers.71 The CWS measures those 

who say that their independent 

contractor job is their primary job and 

that they worked at the independent 

contractor job in the survey’s reference 

week. However, while the Department 

refers to the CWS measure of 

independent contractors throughout this 

analysis, due to the survey’s design it 

should be uniformly recognized as 

representing a constrained subsection of 

the entire independent contractor pool. 

Due to its clear methodological 

constraints, the CWS measure should be 

differentiated from other, more 

comprehensive measures. 

The BLS’s estimate of independent 

contractors includes ‘‘[w]orkers who are 

identified as independent contractors, 

independent consultants, or freelance 

workers, regardless of whether they are 

self-employed or wage and salary 

workers.’’ BLS asks two questions to 

identify independent contractors: 72

• Workers reporting that they are selfemployed are asked: ‘‘Are you selfemployed as an independent contractor, 

independent consultant, freelance 

worker, or something else (such as a 

shop or restaurant owner)?’’ (9.0 million 

independent contractors.) We refer to 

these workers as ‘‘self-employed 


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73While self-employed independent contractors 

are identified by the worker’s main job, other 

independent contractors answered yes to the CWS 

question about working as an independent 

contractor last week. Although the survey question 

does not ask explicitly about the respondent’s main 

job, it follows questions asked in reference to the 

respondent’s main job. 

74Even among independent contractors, failure to 

report multiple jobs in response to survey questions 

is common. For example, Katz and Krueger (2019) 

asked Amazon Mechanical Turk participants the 

CPS-style question ‘‘Last week did you have more 

than one job or business, including part time, 

evening or weekend work?’’ In total, 39 percent of 

respondents responded affirmatively. However, 

these participants were asked the follow-up 

question ‘‘Did you work on any gigs, HITs or other 

small paid jobs last week that you did not include 

in your response to the previous question?’’ After 

this question, which differs from the CPS, 61 

percent of those who indicated that they did not 

hold multiple jobs on the CPS-style question 

acknowledged that they failed to report other work 

in the previous week. As Katz and Krueger write, 

‘‘If these workers are added to the multiple job 

holders, the percent of workers who are multiple 

job holders would almost double from 39 percent 

to 77 percent.’’ See L. Katz and A. Krueger, 

‘‘Understanding Trends in Alternative Work 

Arrangements in the United States,’’ RSF: The 

Russell Sage Foundation Journal of the Social 

Sciences 5(5), p. 132–46 (2019). 

75 K. Lim, A. Miller, M. Risch, and E. Wilking, 

‘‘Independent Contractors in the U.S.: New Trends 

from 15 years of Administrative Tax Data,’’ 

Department of Treasury, p. 61 (Jul. 2019), https:// 

www.irs.gov/pub/irs-soi/19rpindcontractorinus.pdf. 

76Washington Department of Commerce, 

‘‘Independent Contractor Study,’’ p. 21 (Jul. 2019), 

https://deptofcommerce.app.box.com/v/ 

independent-contractor-study. 

77Coalition for Workforce Innovation. ‘‘National 

Survey of 600 Self-Identified Independent 

Contractors’’ (January 2020), https://

rilastagemedia.blob.core.windows.net/rila-web/ 

rila.web/media/media/pdfs/letters%20to%20hill/ 

hr/cwi-report-final.pdf. 

78 In any given week, the total number of 

independent contractors would have been roughly 

the same, but the identity of the individuals who 

do it for less than the full year would likely vary. 

Thus, the number of unique individuals who work 

at some point in a year as independent contractors 

would exceed the number of independent 

contractors who work within any one-week period 

as independent contractors. 

79 D. Farrell and F. Greig, ‘‘Paychecks, Paydays, 

and the Online Platform,’’ JPMorgan Chase Institute 

(2016), https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=2911293. 

80B. Collins, A. Garin, E. Jackson, D. Koustas, and 

M. Payne, ‘‘Is Gig Work Replacing Traditional 

Employment? Evidence from Two Decades of Tax 

Returns,’’ IRS SOI Joint Statistical Research 

Program (2019) (unpublished paper), https://

www.irs.gov/pub/irs-soi/ 

19rpgigworkreplacingtraditionalemployment.pdf. 

81See Katz and Krueger (2018), supra note 12. 

82 Id. at 49. The estimate is 9.6 percent without 

correcting for overrepresentation of self-employed 

workers or multiple job holders. Id. at 31. 

83 Id. at Addendum (‘‘Reconciling the 2017 BLS 

Contingent Worker Survey’’). 

84Note that they estimate 6.7 percent of employed 

workers are independent contractors using the 

CWS, as opposed to 6.9 percent as estimated by the 

BLS. This difference is attributable to changes to the 

sample to create consistency. 

85 In addition to the use of proxy responses, this 

difference is also due to cyclical conditions. The 

impacts of these two are not disaggregated for 

independent contractors, but if we applied the 

relative sizes reported for all alternative work 

arrangements, we would get 0.36 percentage point 

difference due to proxy responses. Additionally, it 

should be noted that this may not entirely be a bias. 

It stems from differences in independent 

contracting reported by proxy respondents and 

actual respondents. As Katz and Krueger explain, 

this difference may be due to a ‘‘mode’’ bias or 

proxy respondents may be less likely to be 

independent contractors. Id. at Addendum p. 4. 

independent contractors’’ in the 

remainder of the analysis. 

• Workers reporting that they are 

wage and salary workers are asked: 

‘‘Last week, were you working as an 

independent contractor, an independent 

consultant, or a freelance worker? That 

is, someone who obtains customers on 

their own to provide a product or 

service.’’ (1.6 million independent 

contractors.) We refer to these workers 

as ‘‘other independent contractors’’ in 

the remainder of the analysis. 

It is important to note that 

independent contractors are identified 

in the CWS in the context of the 

respondent’s ‘‘main’’ job (i.e., the job 

with the most hours).73 Therefore, the 

estimate of independent contractors 

does not include those who may be 

defined as an employee for their 

primary job, but may work as an 

independent contractor for a secondary 

or tertiary job.74 For example, Lim et al. 

(2019) estimate that independent 

contracting work is the primary source 

of income for 48 percent of independent 

contractors.75 Applying this estimate to 

the 10.6 million independent 

contractors estimated from the CWS, 

results in 22.1 million independent 

contractors (10.6 million ÷ 0.48). 

Alternatively, a survey of independent 

contractors in Washington found that 68 

percent of respondents reported that 

independent contract work was their 

primary source of income.76 Applying 

that estimate to the 10.6 million 

independent contractors from the CWS 

results in an estimated 15.6 million 

independent contractors (10.6 million ÷ 

0.68). 

The Coalition for Workforce 

Innovation (CWI) submitted a survey 

they conducted of 600 self-identified 

independent contractors. The survey 

found that independent contracting is 

the primary source of income for 71 

percent of respondents.77 This is 

consistent with the prior estimate from 

Washington State. Applying this 

estimate to the 10.6 million primary 

independent contractors estimated from 

the CWS, results in 14.9 million 

independent contractors (10.6 million ÷ 

0.71). 

The CWS’s large sample size results 

in small sampling error. However, the 

questionnaire’s design may result in 

some non-sampling error. For example, 

one potential source of bias is that the 

CWS only considers independent 

contractors during a single point in 

time—the survey week (generally the 

week prior to the interview). 

These numbers will thus 

underestimate the prevalence of 

independent contracting over a longer 

timeframe, which may better capture the 

size of the population.78 For example, 

Farrell and Greig (2016) used a 

randomized sample of 1 million Chase 

customers to estimate prevalence of the 

Online Platform Economy.79 They 

found that ‘‘[a]lthough 1 percent of 

adults earned income from the Online 

Platform Economy in a given month, 

more than 4 percent participated over 

the three-year period.’’ Additionally, 

Collins et al. (2019) examined tax data 

from 2000 through 2016 and found that 

the number of workers who filed a form 

1099 grew substantially over that 

period, and that fewer than half of these 

workers earned more than $2,500 from 

1099 work in 2016. The prevalence of 

lower annual earnings implies that most 

workers who received a 1099 did not 

work as an independent contractor 

every week.80

The CWS also uses proxy responses, 

which may underestimate the number of 

independent contractors. The RAND 

American Life Panel (ALP) survey 

conducted a supplement in 2015 to 

mimic the CWS questionnaire, but used 

self-responses only. The results of the 

survey were summarized by Katz and 

Krueger (2018).81 This survey found that 

independent contractors comprise 7.2 

percent of workers.82 Katz and Krueger 

identified that the 0.5 percentage point 

difference in magnitude between the 

CWS and the ALP was due to both 

cyclical conditions, and the lack of 

proxy responses in the ALP.83

Therefore, the Department believes a 

reasonable upper-bound on the 

potential bias due to the use of proxy 

responses in the CWS is 0.5 percentage 

points (7.2 versus 6.7).84 85

Another potential source of bias in the 

CWS is that some respondents may not 

self-identify as independent contractors, 

and others who self-identify may 

themselves be improperly classified. 

There are reasons to believe that some 

workers, who are legally considered 

independent contractors, would not 

self-identify as such. For example, if the 

worker has only one employer/client, or 

did not actively pursue the employer/ 

client, then they may not agree that they 

‘‘[obtain] customers on their own to 

provide a product or service.’’ 

Additionally, individuals who do only 


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86The Department believes that including data on 

informal work is useful when discussing the 

magnitude of independent contracting, although not 

all informal work is done by independent 

contractors. The Survey of Household Economics 

and Decision-making asked respondents whether 

they engaged in informal work sometime in the 

prior month. It categorized informal work into three 

broad categories: Personal services, on-line 

activities, and off-line sales and other activities, 

which is broader than the scope of independent 

contractors. These categories include activities like 

house sitting, selling goods online through sites like 

eBay or craigslist, or selling goods at a garage sale. 

The Department acknowledges that the data 

discussed in this study might not be a one-to-one 

match with independent contracting, but it 

nonetheless provides useful data for this purpose. 

87 K. Abraham, and S. Houseman. ‘‘Making Ends 

Meet: The Role of Informal Work in Supplementing 

Americans’ Income.’’ RSF: The Russell Sage 

Foundation Journal of the Social Sciences 5(5): 

110–31 (2019), https://www.aeaweb.org/conference/ 

2019/preliminary/paper/QreAaS2h. 88See, e.g., U.S. Gov’t Accountability Off., GAO– 

09–717, Employee Misclassification: Improved 

Coordination, Outreach, and Targeting Could Better 

Ensure Detection and Prevention 10 (2008) 

(‘‘Although the national extent of employee 

misclassification is unknown, earlier national 

studies and more recent, though not 

comprehensive, studies suggest that employee 

misclassification could be a significant problem 

with adverse consequences.’’). 89 Including, but not limited to: McKinsey Global 

Institute, ‘‘Independent Work: Choice, Necessity, 

and the Gig Economy’’ (2016), https://

www.mckinsey.com/featured-insights/employmentand-growth/independent-work-choice-necessityand-the-gig-economy; Kelly Services, ‘‘Agents of 

Change’’ (2015), https://www.kellyservices.com/ 

global/siteassets/3-kelly-global-services/ 

uploadedfiles/3-kelly_global_services/content/ 

sectionless_pages/kocg1047720freeagent

20whitepaper20210x21020final2.pdf; Robles and 

McGee, ‘‘Exploring Online and Offline Informal 

Work: Findings from the Enterprising and Informal 

Work Activities (EIWA) Survey’’ (2016); Upwork, 

‘‘Freelancing in America’’ (2019); Washington 

Department of Commerce, supra note 76; Farrell 

and Greig, supra note 79; MBO Partners, ‘‘State of 

Independence in America’’ (2016); Abraham et al., 

‘‘Measuring the Gig Economy: Current Knowledge 

and Open Issues’’ (2018), https://www.nber.org/ 

papers/w24950; Collins et al. (2019), supra note 80; 

Gitis et al., ‘‘The Gig Economy: Research and Policy 

Implications of Regional, Economic, and 

Demographic Trends,’’ American Action Forum 

(2017), https://www.americanactionforum.org/ 

research/gig-economy-research-policy-implicationsregional-economic-demographic-trends/ 

#ixzz5IpbJp79a; Dourado and Koopman, 

‘‘Evaluating the Growth of the 1099 Workforce,’’ 

Mercatus Center (2015), https://www.mercatus.org/ 

publication/evaluating-growth-1099-workforce. 

90See Katz and Krueger (2018), supra note 12. 

91See Abraham et al. (2018), supra note 89, Table 

4. 

92E. Jackson, A. Looney, and S. Ramnath, ‘‘The 

Rise of Alternative Work Arrangements: Evidence 

and Implications for Tax Filing and Benefit 

Coverage,’’ OTA Working Paper 114 (2017), https:// 

www.treasury.gov/resource-center/tax-policy/taxanalysis/Documents/WP-114.pdf. 

93Lim et al., supra note 75. 

94 In comparison to household survey data, tax 

data may reduce certain types of biases (such as 

recall bias) while increasing other types (such as 

underreporting bias). Because the Department is 

unable to quantify this tradeoff, it could not 

determine whether, on balance, survey or tax data 

are more reliable. 

informal work may not view themselves 

as independent contractors.86 This 

population could be substantial. 

Abraham and Houseman (2019) 

confirmed this in their examination of 

the Survey of Household Economics and 

Decision-making. They found that 28 

percent of respondents reported doing 

informal work for money over the past 

month.87 Conversely, some workers 

who are improperly classified by their 

employers as independent contractors 

may answer in the affirmative, despite 

not truly being independent contractors. 

The prevalence of misclassification is 

unknown, but it likely occurs across 

numerous sectors in the economy.88

Because reliable data on the potential 

magnitude of these biases are 

unavailable, and so the net direction of 

the biases is unknown, the Department 

has not attempted to calculate how 

these biases may impact the estimated 

number of independent contractors. 

Because the CWS estimate represents 

only the number of workers who 

worked as independent contractors on 

their primary job during the survey 

reference week, the Department applied 

the research literature and adjusted this 

measure to include workers who are 

independent contractors in a secondary 

job or who were excluded from the CWS 

estimate due to other factors. As noted 

above, integrating the estimated 

proportions of workers who are 

independent contractors on secondary 

or otherwise excluded jobs produces 

estimates of 15.6 million and 22.1 

million. The Department uses the 

average of these two estimates, 18.9 

million, as the estimated total number of 

workers working as independent 

contractors in any job at a given time. 

Given the prevalence of independent 

contractors who work sporadically and 

earn minimal income, adjusting the 

estimate according to these sources 

captures some of this population. It is 

likely that this figure is still an 

underestimate of the true independent 

contractor pool. 

2. Range of Estimates in the Literature 

To further consider the range of 

estimates available, the Department 

conducted a literature review, the 

findings of which are presented in Table 

2. Other studies were also considered 

but are excluded from this table because 

the study populations were broader than 

just independent contractors or limited 

to one state.89 The RAND ALP 90 and the 

General Social Survey’s (GSS’s) Quality 

of Worklife (QWL) 91 supplement are 

widely cited alternative estimates. 

However, the Department chose to use 

sources with significantly larger sample 

sizes and more recent data for the 

primary estimate. 

Jackson et al. (2017) 92 and Lim et al. 

(2019) 93 use tax information to estimate 

the prevalence of independent 

contracting. In general, studies using tax 

data tend to show an increase in 

prevalence of independent contracting 

over time. The use of tax data has some 

advantages and disadvantages over 

survey data. Advantages include large 

sample sizes, the ability to link 

information reported on different 

records, the reduction in certain biases 

such as reporting bias, records of all 

activity throughout the calendar year 

(the CWS only references one week), 

and inclusion of both primary and 

secondary independent contractors. 

Disadvantages are that independent 

contractor status needs to be inferred; 

there is likely an underreporting bias 

(i.e., some workers do not file taxes); 

researchers are generally trying to match 

the IRS definition of independent 

contractor, which does not mirror the 

scope of independent contractors under 

the FLSA; and the estimates include 

misclassified independent contractors.94

A major disadvantage of using tax data 

for this analysis is that the detailed 

source data are not publicly available 

and thus the analyses cannot be directly 

verified or adjusted as necessary (e.g., to 

describe characteristics of independent 

contractors, etc.). 

TABLE 2—SUMMARY OF ESTIMATES OF INDEPENDENT CONTRACTING

Source Method Definition a Percent of workers 

(%) Sample size Year 

CPS CWS ...... Survey .... Independent contractor, consultant or 

freelance worker (main only).

6.9 50,392 ..................................................... 2017 

ALP ................ Survey .... Independent contractor, consultant or 

freelance worker (main only).

7.2 6,028 ....................................................... 2015 


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95The Department used the generational 

breakdown used in the MBO Partner’s 2017 report, 

‘‘The State of Independence in America.’’ 

‘‘Millennials’’ were defined as individuals born 

1980–1996, ‘‘Generation X’’ were defined as 

individuals born 1965–1980, and ‘‘Baby Boomers 

and Matures’’ were defined as individuals born 

before 1965. 

96Abraham and Houseman (2019), supra note 87, 

find that informal work decreases as a worker’s age 

increases. Among 18 to 24 years olds, 41.3 percent 

did informal work over the past month. The rate fell 

to 25.7 percent for 45 to 54 year olds, and 13.4 

percent for those 75 years and older. See also 

Upwork (2019), supra note 89. 

97These numbers are based on the respondents 

who state that their race is ‘‘white only’’ or ‘‘black 

only’’ as opposed to identifying as multi-racial. 

98Abraham and Houseman (2019), supra note 87. 

99 Id. 

100Another uncertainty limiting the Department’s 

ability to quantify the possible increase in 

independent contracting is the nature and effect of 

state wage and hour laws. Some states, such as 

California, have laws that place more stringent 

limitations on who may qualify as independent 

contractors than the FLSA. See Cal. Labor Code 

2775 (establishing a demanding ‘‘ABC’’ test 

applicable to most workers when determining 

independent contractor status under California 

law). Because the FLSA does not preclude states 

and localities from establishing broader wage and 

hour protections than those that exist under the 

FLSA, see 29 U.S.C. 218(a), workers in some states 

may be unaffected by this final rule. However, 

because the Department is not well positioned to 

interpret the precise scope of each state’s wage and 

hour laws, the Department is unable to definitively 

determine the degree to which workers in particular 

states would or would not be affected by this final 

rule. 

TABLE 2—SUMMARY OF ESTIMATES OF INDEPENDENT CONTRACTING—Continued 

Source Method Definition a Percent of workers 

(%) Sample size Year 

GSS QWL ...... Survey .... Independent contractor, consultant or 

freelancer (main only).

14.1 2,538 ....................................................... 2014 

Jackson et al Tax data Independent contractor, household 

worker.

b 6.1 ∼5.9 million c ........................................... 2014 

Lim et al ......... Tax data Independent contractor ........................... 8.1 1% of 1099–MISC and 5% of 1099–K ... 2016 

aThe survey data only identify independent contractors on their main job. Jackson et al. include independent contractors as long as at least 15 

percent of their earnings were from self-employment income; thus, this population is broader. If Jackson et al.’s estimate is adjusted to exclude 

those who are primary wage earners, the rate is 4.0 percent. Lim et al. include independent contractors on all jobs. If Lim et al.’s estimate is adjusted to only those who receive a majority of their labor income from independent contracting, the rate is 3.9 percent. bSummation of (1) 2,132,800 filers with earnings from both wages and sole proprietorships and expenses less than $5,000, (2) 4,125,200 primarily sole proprietorships and with less than $5,000 in expenses, and (3) 3,416,300 primarily wage earners. cEstimate based on a 10 percent sample of self-employed workers and a 1 percent sample of W–2 recipients. 

3. Demographics of Independent 

Contractors 

The Department reviewed 

demographic information on 

independent contractors using the CWS, 

which, as stated above, only measures 

those who say that their independent 

contractor job is their primary job and 

that they worked at the independent 

contractor job in the survey’s reference 

week. According to the CWS, these 

primary independent contractors are 

most prevalent in the construction and 

professional and business services 

industries. These two industries employ 

44 percent of primary independent 

contractors. Independent contractors 

tend to be older and predominately 

male (65 percent). Millennials have a 

significantly lower prevalence of 

primary independent contracting than 

older generations: 3.6 percent for 

Millennials compared to 6.0 percent for 

Generation X and 8.8 percent for Baby 

Boomers and Matures.95 However, 

surveys suggest that this trend is 

reversed when secondary independent 

contractors, or those who did informal 

work as independent contractors, are 

included. These divergent data suggest 

that younger workers are more likely to 

use contractor work sporadically and/or 

for supplemental income.96 White 

workers are somewhat overrepresented 

among primary independent 

contractors; they comprise 85 percent of 

this population but only 79 percent of 

the population of workers. Conversely, 

black workers are somewhat 

underrepresented (comprising 9 percent 

and 13 percent, respectively).97 The 

opposite trends emerge when evaluating 

informal work, where racial minorities 

participate at a higher rate than white 

workers.98 Primary independent 

contractors are spread across the 

educational spectrum, with no group 

especially overrepresented. The same 

trend in education attainment holds for 

workers who participate in informal 

work.99

D. Potential Transfers 

Given the current universe of 

independent contractors and the 

possibility that more individuals may 

become independent contractors after 

the rule is finalized, the Department 

here identifies the possible transfers 

among workers and between workers 

and businesses, which may occur. These 

transfer effects are discussed 

qualitatively and include effects relating 

to employer provided benefits, tax 

liability, earnings, minimum wage and 

overtime pay, accurate classification of 

workers, and conversions of employee 

jobs to independent contractor jobs. 

In evaluating potential transfers that 

could be occasioned by the rule, the 

Department notes at the outset that the 

substantive effect of the rule is not 

intended to favor independent 

contractor or employee classification 

relative to the status quo of the 

Department’s existing guidance and 

precedent from courts. However, the 

Department assumes in this RIA that the 

increased legal certainty associated with 

this final rule could lead to an increase 

in the number of independent 

contractor arrangements by reducing the 

transaction and compliance costs 

inherent in structuring such an 

arrangement. The Department has not 

attempted to estimate the magnitude of 

this change, primarily because there are 

not objective tools for quantifying the 

clarity, simplification, and enhanced 

probative value of the Department’s 

proposals for sharpening and focusing 

the economic reality test.100 Several 

commenters assumed the increase in 

independent contractors would be 5 

percent, although none provided 

substantive support to bolster the 

assumption. See EPI, Washington 

Center. Due to the lack of certainty and 

data to support a reliable estimate, the 

Department does not attempt to estimate 

the increase in independent contractor 

relationships that would result due to 

this rule. Therefore, potential transfers 

are discussed qualitatively with some 

numbers presented on a per worker 

basis. Potential transfers may result 

from differences in benefits, tax 

liabilities, and earnings between 

employees and independent contractors. 

Although employment benefits could 

decrease, and tax liabilities could 

increase, the Department believes the 

net impact on total compensation 

should be small in either direction. 

Furthermore, to attract qualified 

workers, companies must offer 

competitive compensation. Therefore, 


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101Under the final rule, a worker may be 

classified only if the job meets the requirements of 

section 795.105. 

102Lim et al., supra note 75 at 3. 

103McKinsey Global Institute, supra note 89 at 

71. 

104The fact that the final rule is not an expansion 

or narrowing of the FLSA’s scope of employment 

is not to say that courts have never in the past 

misapplied the economic reality test in particular 

cases. For example, some courts have expressly 

disagreed on the meaning of the ‘‘integral/ 

integrated’’ factor in the test. The existence of 

seemingly contradictory and inconsistent case law 

is one of the reasons why the Department sees a 

need to issue this final rule. However, as discussed 

extensively above, the Department believes that the 

statement of the economic reality test in the final 

rule is consistent with precedent and the FLSA as 

a whole, even if it is in tension with particular 

cases. 

105Some commenters and reports (See e.g., 

Palagashvili; Fuller et al.,) cited data that indicate 

increased regulatory clarity would likely result in 

workers entering the workforce due to the greater 

flexibility and control provided by independent 

contracting relationships. This would expand the 

workforce rather than transfer workers between 

classifications. 

106EPI, Washington Center, and other 

commenters who use this 5 percent estimate 

assume the entire increase to independent 

contractors consists of workers whose overall 

compensation will decline and whose jobs 

otherwise remain the same. See EPI (characterizing 

converted workers as having ‘‘the same job for 

substantially less compensation’’). The Department 

finds this highly unlikely. For more discussion on 

this topic, see the Job Conversion topic in Section 

II.D.6. 

for workers in a competitive labor 

market, any reduction in benefits and 

increase in taxes are expected to be 

offset by higher base earnings. This 

concept is discussed further below in 

the Earnings section. 

Assuming that independent 

contractor arrangements increase 

following this final rule, it is unclear the 

extent to which this would occur as a 

result of current employees being 

subsequently classified as independent 

contractors or as a result of the hiring of 

new workers as independent 

contractors. This will have implications 

for transfers. If current employees 

change classifications, then there may 

be transfers. Employers could change 

the classification of current employees 

only if those workers could already have 

been classified as independent 

contractors or if the working conditions 

are modified such that the relationship 

becomes a true independent contractor 

relationship, assuming doing so is 

consistent with any applicable 

employment contracts, collective 

bargaining agreement, or other 

applicable laws.101 Lim et al. (2019) 

found in the status quo that there was 

‘‘little evidence that firms are 

increasingly reclassifying existing 

employee relationships as [independent 

contractor] relationships,’’ however, 

they found that ‘‘firms are hiring more 

new workers as [independent 

contractors] rather than as 

employees.’’ 102 The Department does 

not anticipate this phenomenon will 

cease occurring in the presence of the 

final rule. As discussed below, the 

limited number of businesses with 

employees whose roles would meet the 

requirements to be independent 

contractors likely face incentives to 

maintain the status quo for those 

workers, but there will likely be some 

degree of innovation in the labor market 

in response to the rule that compounds 

the current trend towards greater 

numbers of independent contractors. 

For more discussion on how employees 

may be affected by transfers, see the Job 

Conversion discussion in Section 

VI(D)(7). 

By decreasing uncertainty and thus 

potentially opening new opportunities 

for firms, companies may hire 

independent contractors who they 

otherwise would not have hired. In this 

case, there may be a decrease in 

unemployment, an increase in the size 

of the labor force, or both. In a study of 

respondents from both Europe and the 

U.S., McKinsey Global Institute found 

that 15 percent of those not working are 

interested in becoming an independent 

contractor as their primary job.103

Attracting these individuals to join the 

labor force would be classified as a 

societal benefit, rather than a transfer. 

These impacts are evaluated more fully 

below as part of the discussion on Cost 

Savings and Benefits. 

The Department requested comments 

on its assumption that use of 

independent contractors will increase if 

the proposed rule is finalized. Most 

commenters took the view that, 

consistent with the Department’s 

assumption, the final rule will lead to 

an increase in the number and 

proportion of workers who are 

independent contractors. Some 

commenters, such as the Signatory Wall 

and Ceiling Contractors Alliance 

(SWACCA) and other construction 

workers’ unions commented that the 

rule could lead to increases in the 

percentage of independent contractors 

in the workforce by narrowing the 

standard for FLSA employment. But as 

explained above in Section IV(E)(2) and 

later in the discussion of regulatory 

alternatives in Section VI(G)(2), the final 

rule does not narrow or expand the 

standard for FLSA employment. Rather, 

the Department agrees with many 

commenters representing businesses 

and freelance workers that the final rule 

serves only to make that standard 

clearer, enabling businesses and 

individuals to structure their work 

relationships to comply with the law. 

See Section III (discussing commenter 

feedback). While this could lead to a 

greater incidence of independent 

contracting—as businesses and workers 

will be able to more freely adopt 

independent worker arrangements 

without fear of FLSA liability—the final 

rule does not narrow the standard for 

FLSA employment.104

Some commenters disagreed with the 

Department’s decision not to 

specifically quantify a change in the 

number of independent contractors. 

Furthermore, most of the commenters 

who included assumptions of growing 

numbers of independent contractors 

also assumed that those workers were 

drawn from the existing pool of 

employees, not from the otherwise 

unemployed or those outside the labor 

market.105 The Washington Center for 

Equitable Growth (Washington Center), 

for instance, simply assumed a 5 

percent increase in the number of 

independent contractors (corresponding 

to an equivalent decline in 

employees); 106 however, it neither 

provided explanation why that 

percentage was reasonable nor justified 

its assumption that the percentage 

would entirely represent a shift of 

existing employment relationships to 

independent contractor relationships. 

Many commenters asserting and 

estimating a sizable shift from 

employment to independent contracting 

relationships seem to have based their 

estimates on the false impression that 

the final rule would narrow the FLSA 

scope of employment. As explained 

above, this is not the case—the final rule 

does not shift the definition of who is 

an employee under the FLSA. Any shift, 

the Department believes, would have to 

result from increased certainty, reduced 

overhead, and reduced 

misclassification. Conversely, the 

Americans for Prosperity Foundation 

(AFPF) agreed with the Department’s 

decision to not quantify potential 

changes in the aggregate number of 

independent contractors and supported 

the Department’s analysis. 

The Department continues to believe 

that the necessary data and information 

are not available to quantify either any 

shift in independent contracting away 

from employee relationships or the 

number of new independent contractors 

who may enter the workforce in 

response to the rule and the impact of 

such a shift on workers and businesses. 

As explained in the NPRM, any attempt 

to produce a useful estimate for the 

impact of an increase in independent 

contractors requires ascertaining a 


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107 If, for example, a state mandates that 

employees receive paid parental leave, but the 

worker does not have and intends not to have 

children, this ‘‘benefit’’ is of no value to that 

worker. Estimating how an individual worker 

values a particular ‘‘benefit’’ or even a tax liability 

would require a worker-by-worker analysis for 

which the Department lacks necessary data. 

108Fuller, et al., supra note 64 (‘‘Many freelance 

platforms offer access to workers from around the 

world with a wide variety of skills, and payment 

is often per completed task. Covid-19 is accelerating 

the move toward these platforms. . ..’’); see also 

Press Release, New Upwork Study Finds 36% of the 

U.S. Workforce Freelance Amid the COVID–19 

Pandemic, Sep. 15, 2020, available at https://

www.upwork.com/press/releases/new-upworkstudy-finds-36-of-the-us-workforce-freelance-amidthe-covid-19-pandemic. 

109See, e.g., Kim Mackrael, In the Covid 

Economy, Laid-Off Employees become New 

Entrepreneurs, Wall Street Journal, Nov. 18, 2020; 

Uri Berliner, Jobs in the Pandemic: More Are 

Freelance and may stay that way forever, NPR, Sep. 

16, 2020; Jon Younger, A New Payoneer Report 

Shows Covid 19 is Accelerating Freelance Growth, 

Forbes, Sep. 1. 2020. 

110Courts have noted that the FLSA has the 

broadest conception of employment under Federal 

law. See, e.g., Darden, 503 U.S. at 326. To the extent 

that businesses making employment status 

determinations base their decisions on the most 

demanding Federal standard, a rulemaking 

addressing the FLSA’s distinction between 

employees and independent contractors may affect 

the businesses’ classification decisions for purposes 

of benefits and legal requirements under other 

Federal and state laws. 

111BLS, ‘‘Employer Costs for Employee 

Compensation News Release’’ (Sept. 2019), https:// 

www.bls.gov/news.release/archives/ecec_

12182019.htm. For Civilian Workers, this includes 

paid leave ($2.68), insurance ($3.22), and retirement 

and savings benefits ($1.96). It does not include 

overtime and premium pay, shift differential pay, 

nonproduction bonuses, or legally required 

benefits. Calculated as ($2.68 + $3.22 + $1.96)/ 

$37.03. 

112The average economy-wide provision of 

insurance benefits, which represent 8.7 percentage 

points of the 21 percent figure, is also likely to be 

an overestimate for the average percentage of 

compensation offered to the workers most likely to 

be impacted by this rule. 

number of additional variables, 

including how this reduction in 

administrative overhead and 

misclassification would impact 

independent contracting. See 85 FR 

60626. The approach taken by some 

commenters of simply choosing a 

number without support and applying it 

across the entire economy, given the 

extremely large number of employment 

relationships in the United States, the 

differences in how a worker may value 

certain ‘‘benefits,’’ 107 and the unique 

relationships between different types of 

independent contractors and different 

businesses, could create a misleading 

and uncertain estimate of the impact of 

the rule without lending any additional 

clarity because of the lack of the basis 

for such a figure and likely differences 

between the current independent 

contractor population and the 

population likely to arise as a result of 

this rule. Since commenters, including 

those in support and those in 

opposition, did not proffer sufficient 

data upon which to build more accurate 

assumptions, the Department has not 

attempted to quantify this impact. 

1. Impact of COVID–19 on the Rule 

The Department also requested data 

and comment on the possible impacts 

resulting from the COVID–19 pandemic 

as it relates to the composition of the 

labor market, the share and scope of 

independent contractors in the 

workforce, and any associated wage 

effects. Several commenters noted the 

importance of independent contracting 

in weathering the pandemic. For 

example, the Center for Growth and 

Opportunity at Utah State University 

(CGO) wrote that the benefits of 

independent contracting ‘‘are likely to 

grow if the United States labor market 

adapts to the recession spurred by the 

COVID–19 pandemic similarly as it did 

to the financial crisis of 2008.’’ They 

note that during an economic downturn, 

workers can turn to alternative work 

arrangements such as independent 

contracting to supplement their income. 

The view is supported by a recent 

Harvard Business Review article that 

describes how firms have increasingly 

relied on freelancing and platforms that 

allow access to the growing supply of 

on-demand workers to identify 

innovative solutions more flexibly and 

quickly than relying solely on their 

fulltime workforce, noting that ‘‘Early 

signs suggest that Covid–19 will also 

speed up this shift.’’ 108 It is also 

supported by a range of recent news 

reports indicating that freelance 

opportunities provide an important path 

for individuals to return to the 

workforce who lost their jobs due to the 

pandemic.109 Women Employed 

claimed that this rule will degrade jobs, 

and that doing so in the midst of a 

pandemic would be harmful, basing this 

claim on assumptions that this rule 

would ‘‘undermine the FLSA’’ and 

increase misclassification of workers. 

But as explained above, this rule does 

not undermine the FLSA; it sharpens 

the focus of the economic reality test 

and clarifies the meaning of economic 

dependence that courts, the Department, 

and most commenters agree is the 

standard for employment under the Act. 

This clearer standard is likely to reduce 

rather than increase occurrences of 

misclassification. 

2. Employer Provided Benefits 

In the context of transfers, the 

Department attempted to evaluate how 

an increase in independent contracting 

relationships could affect employer 

provided benefits. Although this rule 

only addresses workers’ independent 

contractor status under the FLSA, the 

Department assumes in this analysis 

that employers are likely to keep the 

status of most workers the same across 

all benefits and requirements.110 To the 

extent that employers currently provide 

employees benefits such as health 

insurance, retirement contributions, and 

paid time off, these would likely 

decrease with an increase in the use of 

independent contractors because 

independent contractors generally do 

not receive these benefits directly 

(although independent contractors are 

able to purchase at least some of these 

benefits for themselves and, as 

explained in the preamble, the offering 

of health, retirement, and other benefits 

to workers is not necessarily indicative 

of employee status). Employer-provided 

benefits are often a significant share of 

workers’ compensation. According to 

the BLS’s Employer Costs for Employee 

Compensation (ECEC), the value of 

employer benefits that directly benefit 

employees average 21 percent of total 

compensation.111 The Department notes 

that this 21 percent figure is an average 

for all employees and may not be 

representative of the subset of 

employees whose classification may be 

impacted by this rule. Since the 21 

percent figure includes paid leave (7.2 

percentage points) and retirement 

benefits (5.3 percentage points), and 

workers may value these benefits at very 

different levels, applying these elements 

does not seem reasonable in the context 

of this analysis.112

The Department used the CWS to 

compare prevalence of health insurance 

and retirement benefits across 

employees and independent contractors 

to produce a highly generalized picture. 

However, it should be noted that these 

two populations may differ in other 

ways than just their employment 

classification and the particular 

elements of their compensation 

packages discussed in the preceding 

paragraph which may impact benefit 

amounts. For instance, an employee 

shifting to independent contractor status 

who already receives health benefits 

through a partner’s benefit plan would 

not be impacted by losing heath benefit 

eligibility. Additionally, lower benefits 

may be offset by increased base pay to 

attract workers because workers 

consider the full package of pay and 

benefits when accepting a job. 

According to the CWS’s relatively 

narrow definition of independent 

contractor: 


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113Coalition for Workforce Innovation (2020), 

supra note 77. 

114A. Yildirmaz, M. Goldar, S. Klein, 

‘‘Illuminating the Shadow Workforce: Insights Into 

the Gig Workforce in Businesses,’’ ADP Research 

Institute (February 2020), https://www.adpri.org/ 

research/illuminating-the-shadow-workforce/ 

?release=illuminating-the-shadow-workforce-2020. 

115Access to such benefits might be similar for 

both employees and independent contractors, but it 

is unlikely that the business will contribute similar 

sums to benefits for an independent contractor and 

employee. 

116T. Rowe Price, ‘‘Press Release: The Majority of 

Independent Workers are Actively Saving for 

Retirement’’ (March 25, 2019), https://

www.troweprice.com/corporate/en/press/t-roweprice-the-majority-of-independent-workersareactively-.html 

117 Jackson, Looney, and Ramnath (2017), supra 

note 92. 

• 79.4 percent of self-employed 

independent contractors have health 

insurance. Most of these workers either 

purchased insurance on their own (31.5 

percent) or have access through their 

spouse (28.6 percent). 

• 80.7 percent of other independent 

contractors have health insurance. 

There are three main ways these 

workers receive health insurance: 

Through their spouse (25.1 percent), 

through an employer (24.2), or on their 

own (20.1 percent). 

• 88.3 percent of employees have 

health insurance. Most of these workers 

receive health insurance through their 

work (64.1 percent). Furthermore, 

according to the ECEC, employers pay 

on average 12 percent of an employee’s 

base compensation in health insurance 

premiums. 

Several commenters estimated the 

prevalence of health insurance among 

independent contractors. In early 2020, 

CWI commissioned a national survey of 

600 self-identified independent 

contractors. Their survey found that 84 

percent of independent contractors have 

healthcare coverage.113 The Workplace 

Policy Institute of Littler Mendelson, 

P.C. (WPI) pointed to a study that found 

about 90 percent of gig workers have 

health insurance.114 The study also 

found that less than one-third of 1099– 

MISC workers purchase their own 

health insurance, ‘‘and most indicate 

that health insurance does not affect 

their decision to work as an 

independent contractor.’’ It also notes 

that the businesses interviewed believe 

that workers may have ‘‘made an 

economic decision with their spouse— 

where one spouse works without 

benefits for higher pay and the other 

receives lower pay with benefits— 

resulting in a higher total income and 

health benefits for the household.’’ 

From these data, it is unclear exactly 

how health insurance coverage would 

change if the number of independent 

contractors increased, but the data 

suggest that independent contractors, on 

average, may be less likely to have 

health insurance coverage. That said, 

employment is not a guarantee of health 

insurance, nor do independent 

contractors generally lack health 

insurance. Additionally, simply 

comparing rates between independent 

contractors and employees may be 

misleading. As the U.S. Chamber of 

Commerce pointed out, many 

independent contractors would not be 

eligible for benefits even if they were 

employees due to the short-term and/or 

part-time nature of such an employment 

relationship. 

Women Employed noted that the 

although the Department showed high 

rates of health insurance among 

independent contractors in general, the 

Department did not show that low-wage 

independent contractors have access to 

health insurance. In response, the 

Department compared health insurance 

rates for workers earning less than $15 

per hour and found that 71.0 percent of 

such independent contractors have 

health insurance compared with 78.5 

percent of such employees. Health 

insurance rates are lower for both 

independent contractors and employees 

when limited to low-wage workers. 

However, the gap in coverage between 

low-wage employees and independent 

contractors remains comparable to that 

for all workers: 7.5 percentage points for 

low-wage workers compared to 8.1 

percentage points for all workers. 

A major source of retirement savings 

is employer sponsored retirement 

accounts. According to the CWS, 55.5 

percent of employees have a retirement 

account with their current employer; in 

addition, the ECEC found that 

employers pay 5.3 percent of 

employees’ total compensation in 

retirement benefits on average ($1.96/ 

$37.03). If a worker shifts from 

employee to independent contractor 

status, that worker may no longer 

receive employer-provided retirement 

benefits, but may choose alternate 

personal investment options. As with 

health insurance, it is not clear whether 

retirement savings for such a worker 

would increase or decrease, but such a 

worker would likely need to take a more 

active role in saving for retirement visa`-vis an employee with an employersponsored retirement plan.115

Commenters pointed out that 

independent contractors generally have 

retirement accounts. CWIs survey of 

independent contractors found that 73 

percent have a retirement savings plan. 

The WPI pointed to a study by T. Rowe 

Price that found that more than half of 

independent contractors are saving for 

retirement.116 Conversely, commenters 

such as the Washington Center cited a 

study showing that independent 

contractors are ‘‘less likely . . . to make 

contributions to a retirement 

account.’’ 117 However, that study 

narrowly defines retirement accounts to 

include ‘‘employer-sponsored plans’’ 

while excluding other common longterm saving methods, which biases the 

comparison between independent 

contractors and employees. This 

hampers the ability to substantively 

compare this commenter’s position with 

those of other commenters, such as CWI 

and WPI, listed above. 

Some commenters asserted the 

Department should quantify the impact 

of the rule on benefits such as health 

insurance and retirement savings. This 

includes a letter from 107 U.S. 

Representatives and separate letters 

from Rep. Donald Norcross and Rep. 

Pramila Jayapal. The Texas RioGrande 

Legal Aid (TRLA) claimed that because 

the Department did not estimate the 

‘‘financial impact on the health and 

retirement accounts of workers’’ it 

violated the Administrative Procedure 

Act. However, the Department does not 

believe that these impacts could be 

usefully quantified. First, quantifying 

these impacts necessarily requires 

estimating any increase in the 

prevalence of independent contracting 

relationships. As explained previously, 

the Department does not believe that 

this figure can be meaningfully 

estimated. Second, classification under 

the FLSA does not directly determine 

whether workers qualify for these 

benefit programs, and as such, it is 

difficult to assess how the specific 

workers who are converted from 

employee to independent contractor 

status under the FLSA could have their 

individual benefits affected. If an 

employer provides health and 

retirement benefits to employees, but 

does not provide them to the same 

workers upon conversion of the 

positions into independent contractor 

relationships, overall compensation will 

be negatively impacted unless offset by 

sufficiently higher earnings. However, 

this could happen only in noncompetitive labor markets in which 

employers have the ability to set 

compensation without regard for worker 

preferences. While some employers may 

desire to save the costs of providing 

certain benefits to employees by 

engaging independent contractors, if the 

relevant labor markets are even 

somewhat competitive, they likely will 

need to increase monetary 

compensation, give up, for example, 


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118The share of payroll taxes borne by employees 

versus firms is unknown but economists generally 

believe that employer payroll taxes are partially-tocompletely shifted to employees in the long run. 

For a detailed review of the literature see J. 

Deslauriers, B. Dostie, R. Gagne ́, and J. Pare ́, 

‘‘Estimating the Impacts of Payroll Taxes: Evidence 

from Canadian Employer-Employee Tax Data,’’ IZA 

Institute of Labor Economics Discussion Paper 

Series IZA DP No. 11598 (June 2018), http://

ftp.iza.org/dp11598.pdf. Further information is 

available by the Tax Foundation, https://

taxfoundation.org/what-are-payroll-taxes-and-whopays-them/. 

119 Internal Revenue Service, ‘‘Publication 15, 

(Circular E), Employer’s Tax Guide’’ (Dec. 23, 2019), 

https://www.irs.gov/pub/irs-pdf/p15.pdf. 

120The social security tax has a wage base limit 

of $137,700 in 2020. 

121An additional Medicare Tax of 0.9 percent 

applies to wages paid in excess of $200,000 in a 

calendar year for individual filers. 

122The Department did not undertake to 

comprehensively review state law on 

unemployment insurance in this area, but notes that 

some states do not use the economic reality test to 

determine which individuals are covered by state 

unemployment insurance. 

certain elements of control (i.e., nonpecuniary compensation), or both to 

recruit workers for providing the same 

work. The impacts of the rule would not 

be uniform across workers, especially 

with respect to those workers that may 

become independent contractors. 

Furthermore and as explained further in 

Section VI(D)(7), the Department 

believes the ability for firms to deny 

benefits by converting their workers into 

independent contractors is constrained. 

3. Tax Liability 

Another potentially important source 

of transfers affected by the prevalence of 

independent contracting is tax liability. 

Payroll tax liability is generally divided 

between the employer and the employee 

in the United States. Most economists 

believe that the ‘‘incidence’’ of the 

payroll tax, regardless of liability, falls 

on the employee.118 As self-employed 

workers, independent contractors are 

legally obligated to pay both the 

employee and employer shares of the 

Federal Insurance Contributions Act 

(FICA) taxes. Thus, if workers’ 

classifications change from employees 

to independent contractors, there may 

be a transfer in Federal tax liabilities 

from employers to workers (regardless 

of whether this affects the actual cost of 

these taxes to the worker). These payroll 

taxes include: 119

• Social Security tax: The 6.2 percent 

employer component (half of the 12.4 

percent total).120

• Medicare tax: The 1.45 percent 

employer component (half of the 2.9 

percent total).121

In sum, vis-a`-vis an employee, 

independent contractors are legally 

responsible for an additional 7.65 

percent of their earnings in FICA taxes 

(less the applicable tax deduction for 

this additional payment). However, any 

tax-related transfers from employers to 

workers would likely be offset by higher 

wages employers pay independent 

contractors. Employers will not pay 

payroll taxes for work transferred to 

workers classified as independent 

contractors and market forces could 

compel them to pass the full wage (wage 

+ payroll tax) to the independent 

contractors. That is not the only reason 

we expect independent contractors will 

earn higher hourly earnings, but is the 

focus here. For discussion on other 

expected wage effects, see Section 

VI(D)(4) below. 

Companies also cover unemployment 

insurance and workers’ compensation 

taxes for their employees. Independent 

contractors may choose to pay for 

comparable insurance protection offered 

in the private market, but are not 

obligated to. The resulting regulatory 

effect (experienced as savings, either by 

companies or employees, depending on 

who ultimately bears the cost of the tax) 

combines societal cost savings (the 

lessened administrative cost of 

incrementally lower participation in 

unemployment insurance and workers’ 

compensation programs) and transfers 

(from individuals whose unemployment 

insurance or workers’ compensation 

payments decline, to entities paying less 

in taxes). Independent contractors may 

recoup some or all of the employer 

portion of these taxes and insurance 

premiums in the form of increased 

wages. This rule could decrease 

employers’ tax liabilities and increase 

independent contractors’ take-home 

compensation. However, there are costs 

to independent contractors if they are 

out of work or injured or ill on the job 

because they no longer are protected, 

unless they purchase their own private 

insurance.122 Many of these impacts 

will depend on the individual risk 

tolerances of the workers. It is likely 

that workers who are more comfortable 

taking risks will be attracted to the 

potentially higher take-home 

compensation of independent contractor 

status, while workers who are risk 

averse will likely prefer the 

predictability of traditional employee 

relationships. It is uncertain how the 

universe of workers is dispersed, 

beyond theoretical generalizations. It is 

further unclear how workers’ risk 

preferences will be distributed across 

the market for insurance products. The 

Department was not able to identify 

economy-wide distributional data on 

worker preferences and projected 

purchasing dynamics. That is likely 

because worker preferences are difficult 

to accurately measure and capture in 

datasets due to their high variability 

worker to worker and ambiguity of 

sorting across economic sectors. 

Without access to such data, the 

Department did not attempt to quantify 

the cost of changes in coverage or 

whether the net effect is a benefit or 

cost. 

4. Earnings 

Potential transfers could also occur 

through changes to earnings as a result 

of an increase in independent 

contracting. These transfers could occur 

if workers who were employees 

experience a change in earnings by 

becoming independent contractors, or if 

workers who are out of the labor market 

enter in order to become independent 

contractors. Although the minimum 

wage and overtime pay requirements of 

the FLSA would no longer apply to 

workers who shift from employee status 

to independent contractor status, as 

discussed below, this does not 

sufficiently explain the potential 

transfers that could occur as a result of 

such a shift. Furthermore, the 

Department anticipates an increase in 

labor force activity, but for the reasons 

stated above, the Department does not 

attempt to quantify the magnitude of 

any increase or decrease in earnings as 

a result of increased labor force activity. 

If currently unemployed workers or 

individuals who are out of the labor 

market become independent contractors 

due to this rule, their earnings will 

increase as they currently have no workrelated earnings other than possibly 

unemployment benefits. The impact on 

earnings is more ambiguous if 

employees’ classifications change to 

independent contractors. In theory, 

because independent contractors likely 

prefer to have at least similar levels of 

total compensation as they would earn 

if they were employees, companies 

would likely have to pay more per hour 

to independent contractors than to 

employees because independent 

contractors generally do not receive 

company-provided benefits and have 

higher tax liabilities. Data show an 

hourly wage premium for independent 

contractors when comparing unadjusted 

mean averages. But as the analysis 

below illustrates, when controlling for 

certain differences in worker 

characteristics, this expected wage 

premium may not always be observable 

at a statistically significant level. It 

should be noted, however, that these 

estimates do not attempt to incorporate 

the value of flexibility and satisfaction 

that many independent contractors cite 

as key factors in their preference of 


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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 1219 

123See Katz and Krueger (2018), supra note 12. 

124On-call workers, temporary help agency 

workers, and workers provided by contract firms 

are excluded from the base group of ‘‘traditional’’ 

employees. 

125Choice of exclusionary criteria from Katz and 

Krueger (2018), supra note 12. 

126The CWS data, based on its relatively narrow 

definition of independent contractors, indicated 

that employees worked more hours per week in 

comparison to primary independent contractors. 

The Department found that 81 percent of employees 

worked full-time, compared to 72 percent for selfemployed independent contractors and 69 percent 

for other independent contractors. Katz and Krueger 

similarly found that independent contractors work 

fewer hours per week than employees (statistically 

significant at the 1 percent level of significance in 

all specifications with both datasets). Despite 

working fewer hours per week than employees, selfemployed independent contractors earned more per 

week on average ($980 per week compared to $943 

per week). Other independent contractors, on 

average, worked fewer hours per week and earned 

less per week than employees ($869 per week 

compared to $943 per week). Given the difference 

between hours worked by primary independent 

contractors and employees, and the appeal of 

flexibility cited by many independent contractors, 

average weekly earnings may be an inadequate 

measure. Accordingly, the Department’s analysis 

focuses on hourly wages. 

127The Department followed Katz and Krueger’s 

methodology in excluding observations with 

weekly earnings less than $50, hourly wages less 

than $1, or with hourly wages above $1,000. 

Additionally, workers with weekly earnings above 

$2,885 are topcoded at $2,885. Weekly earnings are 

used to calculate imputed hourly wages. 

128 Id. at 19. 

129 Id. at 34. 

130See Katz and Kreuger (2018), supra note 12 at 

20 (‘‘A positive hourly wage premium for 

independent contractors could reflect a 

compensating differential for lower benefits and the 

need to pay self-employment taxes.’’). 

131 In particular, at least some research reveals 

significant non-pecuniary advantages to 

independent contracting, including through 

increased job satisfaction. See ‘‘The State of 

Independence in America,’’ MBO Partners (2019), 

https://www.mbopartners.com/state-ofindependence/; Chen et al., ‘‘The Value of Flexible 

Work: Evidence from Uber Drivers,’’ Journal of 

Political Economy 127:6, 2735–794 (2019); He, H. 

et al., ‘‘Do Workers Value Flexible Jobs? A Field 

Experiment,’’ NBER Working Paper No. w25423, 

(2019), https://ssrn.com/abstract=3311395; 

McKinsey Global Institute, supra note 89; Upwork 

(2019), supra note 89. 

132Abraham et al. (2018), supra note 89 at 15. 

Generally, ‘‘[h]ousehold surveys consistently show 

lower levels of self-employment than tax data and 

a relatively flat or declining long-term trend in selfemployment as contrasted with the upward trend 

that is evident in tax data.’’ Id.; see also id. at 45. 

133 ‘‘For example, a household survey respondent 

might fail to mention informal work that they do 

not think of as a job, something that further probing 

might uncover. To take another example, a 

household member who is doing work for a 

business may be reported as an employee of that 

business, even in cases where further probing might 

reveal that the person is in fact an independent 

contractor or freelancer.’’ Id. at 15. 

134Specifically, BLS recognized that: (1) The 

‘‘CWS measures only respondents’ main jobs . . ., 

thus potentially missing workers with 

nontraditional second or supplementary income 

jobs’’; (2) ‘‘CWS only asks respondents about their 

work in the past week and may fail to capture 

seasonal workers or workers that supplement their 

income with occasional work’’; and (3) ‘‘added 

questions regarding electronically-mediated 

employment resulted in a large number of false 

positive answers.’’ Government Accountability 

Office, Contingent Workforce: BLS is Reassessing 

Measurement of Nontraditional Workers, Jan. 29, 

2019, https://www.gao.gov/assets/700/696643.pdf. 

independent contracting arrangements 

over traditional employment. 

Comparing the average earnings, 

hourly wages, and hours of current 

employees and independent contractors 

may provide some indication of the 

impact on wages of a worker who 

transitions from an employee to 

independent contractor classification. A 

regression analysis that controls for 

observable differences between 

independent contractors and employees 

may help isolate the impact on earning, 

hourly wages, and usual hours of being 

an independent contractor. Katz and 

Krueger (2018) 123 regressed the natural 

log of hourly wages on independent 

contractor status,124 occupation, sex, 

potential experience, potential 

experience squared, education, race, 

and ethnicity. They use the 2005 CWS 

and the 2015 RAND ALP (the 2017 CWS 

was not available at the time of their 

analysis). The Department conducted a 

similar regression using the 2017 CWS. 

In both Katz and Krueger’s regression 

results and the Department’s 

calculations, the following outlying 

values were removed: Workers reporting 

earning less than $50 per week, less 

than $1 per hour, or more than $1,000 

per hour.125

The Department combined the CWS 

data on usual earnings per week and 

hours worked per week to estimate 

hourly wage rates to normalize the 

comparison between independent 

contractors and employees.126 The 

Department found that independent 

contractors tend to earn more per hour: 

Employees earned an average of $24.07 

per hour, self-employed independent 

contractors earned an average of $27.43 

per hour, and other independent 

contractors earned an average of $26.71 

per hour (the average hourly wage is 

$27.29 when combining the two types of 

independent contractors).127 Katz and 

Krueger conducted similar hourly 

earnings estimates based on 2005 CWS 

and 2015 ALP data. Their analysis of the 

2005 CWS data indicated that ‘‘[b]efore 

conditioning on covariates, the 2005 

and 2015 results are similar: freelancers 

and contract workers are paid more per 

hour than traditional employees.’’ 128

When controlling for education, 

potential experience, potential 

experience squared, race, ethnicity, sex 

and occupation, independent 

contractors’ higher hourly wages in the 

2005 CWS data remained higher but 

were not statistically significant. But 

Katz and Krueger’s analysis of the 2015 

ALP data under the same specifications 

found that primary independent 

contractors earned more per hour than 

traditional employees, and the estimates 

were statistically significant.129

Conceptually, the Department expects 

that independent contractors would 

earn more per hour than traditional 

employees in base compensation as an 

offset to employer-provided benefits and 

increases in tax liabilities. Katz and 

Krueger’s analysis of the 2015 RAND 

ALP data appears to support this 

prediction.130 However, they 

recommend caution in interpreting the 

estimates from the ALP due to the 

relatively small sample size. Their 

analysis of the 2005 CWS data and the 

Department’s similar analysis of 2017 

CWS data did not show a statistically 

significant difference. But as previously 

noted, comparing current employees to 

current primary independent 

contractors may not be indicative of 

how earnings would change for current 

employees who became independent 

contractors. Nor do such wage-based 

comparisons reflect the non-pecuniary 

attributes of employees and 

independent contractors.131

One potential reason for the variance 

among the estimates for independent 

contractor wages could be error in the 

measurement of independent contractor 

status and earnings, a factor that is 

present throughout every analysis in 

this area. As a recent analysis 

concluded, ‘‘different data sources 

provide quite different answers to the 

simple question of what is the level and 

trend of self-employment in the U.S. 

economy,’’ which suggest substantial 

measurement error in at least some data 

sources.132 As noted above, reporting 

errors by survey respondents may 

contribute to measurement error in CWS 

data.133 Additionally, CWS questions 

‘‘were asked only about people who had 

already been identified as employed in 

response to the survey’s standard 

employment questions and only about 

their main jobs,’’ and therefore may 

miss important segments of the 

population. BLS has recently 

acknowledged limitations in the 2017 

CWS survey in response to a GAO audit 

and is reevaluating how it would 

measure independent contractors in the 

future.134

Another potential bias in the 

Department’s results could be due to the 

exclusion of relevant explanatory 

variables from the model specification, 

including the omission of observable 

variables that correlate with hourly 

earnings. For example, the Department’s 

analysis of 2017 CWS data used 22 


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1220 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

135 Department of Labor, Office of Federal 

Contracting Compliance Programs, Directive 2018– 

5, (Aug. 24, 2018), https://www.dol.gov/agencies/ 

ofccp/directives/2018-05#ftn.id10. 

136For example, because individuals working in 

that occupation as independent contractors are less 

likely to be in positions with managerial 

responsibilities over other workers than are 

employees. 

137He, H. et al. (2019), supra note 131. 

138California Labor Commissioner’s Office, 2017– 

2018 Fiscal Year Report on the Effectiveness of the 

Bureau of Field Enforcement (2018), https://

www.dir.ca.gov/dlse/BOFE_LegReport2018.pdf. 

Massachusetts Council on the Underground 

Economy, 2017 Annual Report, (2017), https://

www.mass.gov/doc/cue-annual-report-2017-0/ 

download. Written Testimony of Jennifer L. Berrier, 

Deputy Secretary, Department of Labor & Industry 

Before the House Labor & Industry Committee 

(April 29, 2019). 

139C. Ruckelshaus and C. Gao, ‘‘Who’s the Boss: 

Restoring Accountability for Labor Standards in 

Outsourced Work,’’ National Employment Law 

Project, 9–27, (2014), https://www.nelp.org/wpcontent/uploads/2015/02/Whos-the-Boss-RestoringAccountability-Labor-Standards-Outsourced-WorkReport.pdf. 

140S. Leberstein and C. Ruckelshaus, 

‘‘Independent Contractor vs. Employee: Why 

Independent Contractor Misclassification Matters 

and What We Can Do to Stop It,’’ National 

Employment Law Project, (2016), https://

s27147.pcdn.co/wp-content/uploads/Policy-BriefIndependent-Contractor-vs-Employee.pdf. Bureau 

of Labor Statistics, ‘‘Contingent and Alternative 

Employment Arrangements—May 2017,’’ (2018), 

https://www.bls.gov/news.release/archives/ 

conemp_06072018.htm. 

141U.S. Government Accountability Office, 

‘‘Contingent Workforce,’’ GAO–15–168R. DC, 

(2018). Office of Attorney General, ‘‘Illegal Worker 

Misclassification: Payroll Fraud in the District’s 

Construction Industry,’’ (2019). Ormiston, R., 

Belman, D., Brockman, J., and M. Hinkel, 

‘‘Rebuilding Residential Construction,’’ in Creating 

Good Jobs: An Industry-Based Strategy 75, 80 (Paul 

Osterman ed., MIT Press 2020). 

142R. Ormiston et al. (2020), supra note 141. Liu, 

Y.Y., Flaming, D. and P. Burns, ‘‘Sinking 

Underground: The Growing Informal Economy in 

California Construction,’’ Economic Roundtable, 2 

(2014), https://economicrt.org/publication/sinkingunderground. 143C. Husak, ‘‘How U.S. Companies Harm 

Workers by Making them Independent 

Contractors,’’ Washington Center for Equitable 

Growth, (2019), https://equitablegrowth.org/how-us-companies-harm-workers-by-making-themindependent-contractors/. 

occupation dummy variables but did 

not control for a worker’s job position 

within any of the occupations (although 

it did control for ‘‘potential 

experience’’). However, as the 

Department’s guidance indicates, a 

statistical comparison of earnings 

between workers generally must control 

for ‘‘job level or grade’’ in addition to 

experience to ensure the comparison is 

for workers in similar jobs.135 If, 

hypothetically, independent contractors 

on average have lower job levels (or 

equivalents) than traditional employees 

within each occupation,136 the 

Department’s analysis would not be 

comparing the hourly earnings of 

primary independent contractors and 

employees who have the same jobs. 

Instead, the Department would be 

comparing a population of relatively 

low-level independent contractors with 

a population that includes both lowand high-level employees. 

The existence of unobservable 

differences between independent 

contractors and employees that are 

correlated with earnings, such as 

productivity, skill, and preference for 

flexibility also bias comparison of 

hourly earnings. For example, 

independent contractors may be on 

average more willing than employees to 

trade monetary compensation for 

increased workplace flexibility that may 

accompany independent contractor 

status, which would obscure the 

observability of an earnings premium 

for independent contractors.137 Nonpecuniary benefits of independent 

contracting, often including workplace 

flexibility, may impact the occurrence of 

an earnings premium, measured strictly 

in monetary terms, but may contribute 

to workers’ evaluation of the merits of 

in engaging as independent contractors. 

Independent contractors’ hourly 

earnings premium may be best observed 

at the margin, such as comparing a 

worker’s behavior when deciding 

between two similar positions, one as an 

employee and one as an independent 

contractor. However, the Department 

could not find data on such situations 

to allow for an economy-wide estimate, 

nor did commenters provide such data. 

Some commenters expressed concern 

that the Department did not sufficiently 

justify its claim that independent 

contractors earn an earnings premium. 

Other commenters cited evidence 

purporting to show that workers 

misclassified as independent 

contractors earn less than employees. 

Much of this evidence, however, relates 

only to total take-home pay, which may 

reflect mere variation in hours-worked, 

rather than indicate any relation to the 

existence of an earnings premium. Some 

other evidence on lower earnings relates 

to misclassified workers—but the final 

rule is expected to reduce 

misclassifications by increasing 

certainty, and as explained further 

below, the Department does not believe 

that evidence relating to misclassified 

workers is applicable to the 

independent contracting population as a 

whole. For example, the Coalition of 

State Attorneys General, Cities, and 

Municipal Agencies (State AGs) cited 

recent state data on awards to workers 

who were misclassified and evidence 

that the misclassified workers face 

higher rates of wage theft and wage 

suppression.138 139 They additionally 

cited evidence produced by another 

critical commenter of this rule, the 

National Employment Law Project 

(NELP), that the State AGs claimed 

shows that once controls are 

implemented to account for taxes, 

business expenses, and legal risks, 

workers who have been misclassified as 

independent contractors often earn 

significantly less than similar workers 

paid as employees.140 The Department 

expects the rule to reduce 

misclassification, which based on these 

above commenters’ analyses will result 

in significant cost savings. 

A number of other commenters made 

similar claims that the Department did 

not adequately address the 

misclassification of workers, and 

posited this would impose costs. In each 

case, the commenter did not 

demonstrate how the rule would 

increase the frequency of 

misclassification. North America’s 

Building Trades Unions made similar 

claims. Its comment cited a number of 

studies, including a GAO study finding 

contingent workers (workers who lack 

an explicit or implicit contract for longterm employment, but who can be 

employees or independent contractors 

under the FLSA) have lower earnings 

than those who are not contingent 

workers; a DC Office of Attorney 

General study that estimated 

misclassified construction workers in 

DC may earn 11.5 percent less in takehome pay than employees, based on 

implied findings that result from a 

series of selected assumptions; and a 

sampling of studies on construction 

workers that claimed significant losses 

in net pay for construction workers 

misclassified as independent 

contractors compared to employees.141

The United Brotherhood of Carpenters 

and Joiners of America asserted that 

many construction companies 

misclassify workers as independent 

contractors in order to pay them less 

than employees and cited estimates of 

the magnitude of the difference, and 

claims that the Department’s rule ‘‘does 

nothing to stem the abuse.’’ 142

Commenter Matt Brown cited a 

Washington Center report that claims 

low- and middle-wage gig workers make 

less than comparable employees.143 The 

same commenter noted that, applied 

appropriately, ‘‘Independent contracting 

is a critical part of the economy.’’ NELP 

and the National Women’s Law Center 

(NWLC) cited a study, notably from a 

report for New York’s taxi and 

limousine industry, claiming that while 

independent contractors in New York in 

a subset of industries (construction, 

retail, personal care, and others) 


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144 J.A. Parrott and M. Reich, ‘‘An Earnings 

Standard for New York City’s App-based Drivers: 

Economic Analysis and Policy Assessment,’’ Report 

for the New York City Taxi and Limousine 

Commission, (2018), https://

static1.squarespace.com/static/ 

53ee4f0be4b015b9c3690d84/t/ 

5b3a3aaa0e2e72ca74079142/1530542764109/ 

ParrottReich+NYC+App+Drivers+TLC+Jul+2018jul1.pdf. 

145BLS, https://www.bls.gov/news.release/ 

conemp.nr0.htm. 

146The 11 to 14 percent earnings premium for 

independent contractors is also an economy-wide 

finding. 

147The Department expects that many new 

independent contractor jobs will be created due to 

this rule, but does not anticipate many existing 

employee positions to be converted to independent 

contractor relationships because of it. 

experienced positive wage growth, they 

had lower increases in their real annual 

earnings from 2013 to 2018 than the 

counterpart employees.144 PA L&I 

claimed that the Department provided 

‘‘no evidence’’ to support other claims 

about compensation premiums. 

However, the Department offered a 

significant data-backed rationale for 

those sections, and in fact notes that PA 

L&I’s own comment refers to some of 

these sources in its critique, though it 

offers no data of its own. Some 

commenters asserted that companies 

make workers independent contractors 

specifically because they can pay them 

less due to a lack of bargaining power, 

but they do not offer substantive data to 

demonstrate that this is the case 

throughout the economy. Since the 

failure to pay misclassified workers the 

wages that are due them is already 

prohibited by law, the Department 

determined comments on the topic fall 

outside the scope of this rule and 

analysis. As stated elsewhere, the 

Department expects that 

misclassification will be reduced 

because of this rule. Further, because 

meeting the proper standards for 

legitimate independent contracting will 

generally entail a substantively different 

relationship between a worker and a 

business beyond a simple change in 

classification, and no commenters nor 

the Department’s own review of past 

court cases yielded any examples of this 

phenomenon in practice, the 

Department has not attempted to 

quantify it. For most discussion, see the 

Job Conversion discussion at Section 

(VI)(D)(7). 

The data employed in the comments 

and the reports commenters cite to 

support their claims on impacts to 

earnings are not strictly based on 

independent contractors. In fact, several 

of them focus explicitly on contingent 

workers, who are defined as ‘‘persons 

who do not expect their jobs to last or 

who report that their jobs are 

temporary.’’ 145 These persons can be 

employees or independent contractors, 

and may not include all independent 

contractors, depending on the nature of 

the contractor’s work. Estimates based 

on these definitions are not useful for 

the purpose of evaluating the universe 

of independent contractors. The nonrepresentative data sources preclude 

widespread applicability. Further, these 

commenters and their cited sources 

largely focused on misclassified 

workers, who are defined as workers 

unlawfully classified as independent 

contractors in order to limit employers’ 

monetary and legal liabilities. Selection 

bias causes the estimates of the impacts 

on this group to be unreliable; the 

sample likely includes illicit actors. The 

Department recognizes that some illicit 

actors intentionally evade the law, but 

its analysis of this rule’s impact 

naturally focuses on employers, 

employees, and independent contractors 

that would follow the rule to the best of 

their ability. While these comments and 

the sources upon which they rely 

highlight important worker issues, the 

non-representative data presented 

cannot be extrapolated to the universe 

of individuals classified as independent 

contractors, for whom the literature 

offers strong evidence of an earnings 

premium. 

Some commenters provided specific 

concerns with the Department’s 

numbers. SWACCA disputes the 

Department’s justification of the 

assertion that independent contractors 

earn more than employees because the 

unconditional mean hourly rate of 

independent contractors is higher than 

the unconditional mean hourly rate of 

employees. They note that the 11 to 14 

percent higher hourly wage ($26.71 and 

$27.43 per hour for independent 

contractors versus $24.07 per hour for 

employees) is insufficient to cover the 

average of 21 percent of total 

compensation that employees receive in 

employer-provided benefits. While 

SWACCA correctly identified that the 

hourly wage premium independent 

contractors enjoy economy-wide may be 

less than employer’s total cost of 

providing benefits, such a comparison 

may not accurately reflect the value the 

employee places on the employerprovided benefits. If, for example, a 

worker already has access to health 

insurance as a military veteran, that 

worker will not value the employer’s 

provision of health insurance. Further, 

even assuming the worker values these 

benefits at the same level as the 

employer’s cost for the benefits, the 

analysis cited earnings premiums and 

benefits which are based on all 

employees and independent contractors 

in the economy and may not reflect the 

narrower universe of employees whose 

classification is most likely be affected 

by this rule.146 Employing economywide averages to compare niche subsets 

of the economy is not a sound approach. 

As such, it is inappropriate to assume, 

as SWACCA did, that the average 

employee who is converted to 

independent contractor status as a result 

of the rule would gain the same earnings 

premium enjoyed by the average 

economy-wide independent contractor, 

or lose benefits equal to the benefits 

enjoyed by the average economy-wide 

employee. The Department believes that 

many workers who are most likely to be 

converted due to this rule likely do not 

presently receive benefits or, if they do 

receive fringe benefits, their value (both 

as measured by the worker and as an 

absolute cost to the employer) falls 

below the economy-wide average.147

Due to the highly individualized 

impacts that vary across numerous 

undefined variables (risk tolerances; 

specifics regarding level of position, 

industry, location; access to other means 

of benefits provision; etc.), the 

Department did not attempt to quantify 

such an impact. Considered 

qualitatively, the Department notes that 

employees who make more than the 

minimum wage implicitly display a 

measure of bargaining power because 

their employer could lawfully reduce 

their wages but has not. If employees 

have bargaining power—meaning labor 

market conditions require employers to 

account for workers’ preferences— they 

would be positioned to negotiate an 

earnings premium that could offset a 

reduction in benefits that may result 

from being converted to independent 

contractors, which may be higher or 

lower than the economy-wide average. 

Similarly, a worker without bargaining 

power would be unlikely to receive the 

11 to 14 percent earnings premium if 

converted from employee to 

independent contractor status—but such 

no-bargaining-power employees are also 

much less likely to have any companyprovided benefits to lose as a result of 

the conversion. Ultimately, there is no 

reason to believe employees whose 

classification may be affected by the 

rule are likely to have the same benefits 

as an average employee or, if converted 

to independent contractors, would 

receive the same earnings premium that 

the average independent contractor has 

over the average employee. As 

explained below further in Section 


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148The result is statistically significant at the 90 

percent confidence level but not at the 95 percent 

level. 

149EPI cites three sources alongside its claim, 

Manning (2003), Dube et al. (2018), and a literature 

review by the Washington Center, which also 

submitted a comment opposing this rule. The 

Manning book is cited by both other commenters, 

with the Washington Center’s analysis drawing on 

it in numerous sections of its review as 

fundamental support. The Dube et al study focused 

exclusively on users of a specific online task portal 

(Amazon Mechanical Turk), which is a niche 

market of independent contractors and is a 

marketplace accessible to 49 countries, which 

makes it difficult to apply the findings with 

confidence to the U.S. market and the whole 

independent contractor universe. The Washington 

Center citation was a literature review of work in 

the field of monopsony in labor markets; its 

findings did not offer direct applications to the 

independent contractor universe. Furthermore, its 

review concluded, ‘‘our results provide evidence on 

the elasticity of labor supply to the firm and the 

implied degree of firms’ wage-setting power, but not 

necessarily whether the firms are able to exercise 

this power,’’ explaining that it appears other forces 

rein in firms’ wage-setting power to some degree. 

150A. Manning, Monopsony in Motion: Imperfect 

Competition in Labor Markets, Princeton, N.J.: 

Princeton University Press, (2003). A. Sokolova and 

T. Sorensen, ‘‘Monopsony in Labor Markets: A 

Meta-Analysis,’’ Washington Center for Equitable 

Growth, (February 2020). A. Dube, J. Jacobs, S. 

Naidu, and S. Suri, ‘‘Monopsony in Online Labor 

Markets,’’ American Economic Review: Insights 

2(1): 33–46 (March 2020), https://www.aeaweb.org/ 

articles?id=10.1257/aeri.20180150. 

151Some sources have argued that businesses, in 

fact, use scheduling in a way that negatively affect 

worker flexibility. See e.g., L. Golden, ‘‘Irregular 

Work Scheduling and Its Consequences,’’ Economic 

Policy Institute, (April 2015), https://files.epi.org/ 

pdf/82524.pdf (‘‘Facilitated by new software 

technology, many employers are adopting a human 

resource strategy of hiring a cadre of part-time 

VI(D)(7), the Department expects that 

most workers whose classification may 

be affected by this rule will have a 

measure of bargaining power that could 

allow them to offset reductions in 

benefits with higher earnings, better 

working conditions, or both. 

The Washington Center asserted that 

the population of independent 

contractors is very diverse and that 

comparing mean wages is not 

appropriate, expounding that the 

independent contractor market includes 

both high-wage workers with adequate 

bargaining power and low-wage workers 

with little bargaining power. The 

commenter did not explain how this 

point meaningfully applies to the 

Department’s analysis, which addressed 

the diversity of the labor market in its 

regression specifications, controlling for 

many more variables than simply 

income. Nonetheless, in response to this 

comment the Department conducted 

two additional regression analyses as a 

proxy for the labor market for low-wage 

workers. The results were largely 

consistent with the initial conclusions 

presented in the NPRM. The 

Department ran its regression model 

including only low-education workers 

(a high school diploma or less). In this 

case, independent contractors had an 

average wage about 9 percent higher, 

and the results were statistically 

significant. The Department also ran a 

regression including only workers in 

low-wage occupations (12 occupations 

with mean hourly rate less than the 

overall mean), for which the coefficient 

on independent contractor was positive, 

although small.148

The Economic Policy Institute (EPI) 

estimated annual transfers from workers 

to employers of $3.3 billion in 

supplemental pay, paid leave, insurance 

and retirement benefits, and the 

employer share of Social Security and 

Medicare taxes. Its estimate is based on 

the primary assumptions that (1) 

employees reclassified as independent 

contractors will be paid the same in 

nominal wages and (2) there will be an 

increase of 5 percent in the number of 

independent contractors. EPI states that 

the first assumption is based on sources 

demonstrating that perfect competition 

in labor markets is rare, a claim stated 

by several other commenters. However, 

Alan Manning, the author of the 

foundational source referenced to make 

this case (cited by EPI, sources cited by 

EPI in the same section, and other 

commenters), explicitly caveats that the 

wage-setting assumption should not be 

applied to the self-employed (under 

which category independent contractors 

fall).149 Manning states, ‘‘In this book it 

is assumed that firms set wages. This is 

a more appropriate assumption in some 

labour markets than others. For 

example, it would not seem to be 

appropriate [. . .] for the selfemployed.’’ 150 The sources that EPI 

cites thus do not support its ultimate 

conclusion. Rather, EPI’s 

methodological assumptions appear to 

run counter to a widely-cited source 

that EPI itself relies on. Finally, the EPI 

analysis also relied on firms’ wagesetting power to be absolute, that labor 

supply is perfectly inelastic. EPI’s 

analysis proceeds from the premise that 

‘‘perfect competition is rare,’’ but then 

jumps to the claim that ‘‘most labor 

markets do not function competitively,’’ 

and that worker are particularly ‘‘likely 

to lack the power to bargain for higher 

wages to compensate for their loss of 

benefits and increase in taxes when they 

become independent contractors.’’ 

However, each of the sources the EPI 

cites for this proposition, which are 

discussed above, clearly show that firms 

do not possess or exert such absolute 

wage-setting power. These flaws 

fundamentally undermine EPI’s 

estimates and yet go unaddressed by EPI 

and other commenters that reference 

EPI’s estimates. The Department, 

therefore, declined to integrate these 

unreliable estimates into its analysis 

due to such methodological concerns. 

EPI’s analysis states that ‘‘it is 

difficult to imagine that there are a 

meaningful number of workers who 

would get more satisfaction from doing 

the same job for substantially less 

compensation as an independent 

contractor than for substantially more 

compensation as a payroll employee.’’ 

But this statement exposes what appears 

to be a flawed assumption in EPI’s 

analysis. Under the economic reality 

test, an employee typically cannot 

possess the ‘‘same job’’ as an 

independent contractor. Rather, for the 

worker to be classified as an 

independent contractor, the worker 

must, on the whole, possess the 

characteristics of an independent 

contractor, which often include 

meaningful control over the work or 

meaningful opportunity for profit. EPI’s 

analysis assumes, however, that the 

employer can and will simply reclassify 

a worker as an independent contractor 

without regard for the features of the 

working relationship. 

EPI’s analysis considers only 

monetary compensation as part of the 

‘‘value of a job to a worker.’’ In the May 

2017 Contingent Worker Supplement 

(CWS) to the Current Population Survey 

(CPS) workers classified as independent 

contractors were asked about their 

preferences toward employment 

arrangement. Their responses are 

indicative of non-monetary value 

derived from independent contractor 

status. When asked, ‘‘Would you prefer 

to work for someone else?’’ independent 

contractors resoundingly stated ‘‘No’’ 

over ‘‘Yes’’ by a ratio of nearly 8 to 1. 

Furthermore, the two most noted 

responses to the question, ‘‘What is the 

main reason you are self-employed/an 

independent contractor?’’ were 

‘‘Flexibility of schedule’’ and ‘‘Enjoys 

being own boss/independent.’’ It is 

evident that most independent 

contractors strongly value the nonpecuniary compensation they receive. 

EPI does not address how these nonpecuniary benefits factor into worker 

compensation. 

Arguing against the Department’s 

inclusion of flexibility and satisfaction 

as important non-pecuniary 

compensation factors in the NPRM, EPI 

states that ‘‘employers are able to 

provide a huge amount of flexibility to 

payroll employees if they choose to; the 

‘inherent’ tradeoff between flexibility 

and payroll employment is greatly 

exaggerated.’’ 151


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employees whose work schedules are modified, 

often on short notice, to match the employer’s 

staffing with customer demand at the moment.’’). 

152Bureau of Labor Statistics, ‘‘Contingent and 

Alternative Employment Arrangements—May 

2017,’’ USDL–18–0942 (June 7, 2018), https://

www.bls.gov/news.release/pdf/conemp.pdf. MBO 

Partners, The State of Independence in America: 

2018: The New Normal, 2018, 7. James Manyika et 

al., Independent Work: Choice, Necessity, and the 

Gig Economy (New York: McKinsey Global 

Institute, October 2016). 

153 K. Walter and K. Bahn, ‘‘Raising Pay and 

Providing Benefits for Workers in a Disruptive 

Economy.’’ Washington: Center for American 

Progress (2017), https://www.americanprogress.org/ 

issues/economy/reports/2017/10/13/440483/ 

raising-pay-providing-benefits-workers-disruptiveeconomy/. 

154M. Reich. ‘‘Pay, Passengers and Profits: Effects 

of Employee Status for California TNC Drivers.’’ 

University of California, Berkeley (October 5, 2020), 

https://irle.berkeley.edu/files/2020/10/PayPassengers-and-Profits.pdf; L. Moe, et al. ‘‘The 

Magnitude of Low-Paid Gig and Independent 

Contract Work in New York State,’’ The New 

School Center for New York City Affairs (February 

2020), https://static1.squarespace.com/static/ 

53ee4f0be4b015b9c3690d84/t/ 

5e424affd767af4f34c0d9a9/1581402883035/ 

Feb112020_GigReport.pdf. 

155 ‘‘Skokie Cleaning Business Must Pay $500K In 

Unpaid Wages, Damages to Workers,’’ 

CHICAGO.CBSLOCAL.COM (May 5, 2012), https:// 

chicago.cbslocal.com/2012/05/05/skokie-cleaningbusiness-must-pay-500k-in-unpaid-wages-damagesto-workers/. The Department believes that 

misclassification is an important concern that the 

rule addresses, and that the rule will reduce the 

ability of employers to misclassify its workers by 

rendering the test more clear and understandable. 

EPI’s argument is less than persuasive 

for a number of reasons. First, 

economists have long recognized that 

workers value leisure as well as the 

remuneration of labor. As such, any 

worker selecting between jobs is likely 

to consider the flexibility of work 

schedules, the compensation package, 

fringe benefits, and a host of nonpecuniary compensation factors when 

deciding both whether to work at a 

particular company and how many 

hours to spend working at that 

company. Second, the fact that some 

employees have flexibility does not 

imply that those employees do not value 

the flexibility or that greater flexibility 

is not something employees would trade 

for lower compensation. Third, in many 

jobs, employee flexibility is necessarily 

limited because the business requires a 

certain number of employees working 

together to accomplish a task, and so 

granting significant flexibility to 

employees would result in less 

productivity for the business which 

would likely result in lower 

compensation for the workers. Fourth, 

some employers do offer employees 

flexibility, but often that flexibility 

comes at a cost to the workers (of note, 

payroll employees generally have less 

control over their own schedules than 

similarly-situated independent 

contractors). 

EPI, however, fails to explain why an 

employer would, all things equal, allow 

its employees to work for direct 

competitors, let them choose 

assignments, or set their own hours. The 

point of hiring employees is to have 

workers that an employer can call upon 

and direct to perform desired tasks, as 

opposed to contractors who operate 

their own businesses. While some 

employers may provide a measure of 

flexibility they generally would not offer 

the same degree of flexibility enjoyed by 

individuals who are in business for 

themselves. The Department believes, 

based on data in the CWS survey and 

beyond, that independent contractors 

experience significantly more flexibility 

than employees and that such a feature 

is a core motivator.152

The Department notes several other 

key weaknesses in EPI’s estimate that 

undermine its assertions. EPI’s estimate 

of transfers from workers to employers 

is an estimate of the gross transfer 

without taking into account that the 

independent contractors also have the 

ability to deduct some of their 

additional expenses on their income 

taxes and thus is not a comprehensive 

comparison of the net earnings of 

employees and independent contractors. 

EPI’s estimate is based on applying a net 

loss in income for every new 

independent contractor, yet the data 

resoundingly show that workers pursue 

independent contract work voluntarily 

and in vast numbers, suggesting that 

other factors, unmentioned by the 

commenter, are significant to worker 

decisions in this field. EPI nonetheless 

assumes a blanket negative impact will 

be felt economy-wide for all new 

independent contractors—an 

assumption the Department believes is 

unsupportable in the face of the existing 

evidence. 

Ultimately, based on the assumption 

that the final rule will increase 

independent contracting arrangements, 

the Department acknowledges that there 

may be transfers between employers and 

employees, and some of those transfers 

may come about as a result of changes 

in earnings. However, for the reasons 

stated above, the Department does not 

believe that these transfers can be 

quantified with a reasonable degree of 

certainty for purposes of this rule. The 

Department also does not believe that 

independent contracting roles are 

usefully compared by focusing solely on 

earnings to employee roles—under the 

economic reality test embraced by the 

final rule, control and an opportunity 

for profit are core considerations for 

determining who is an independent 

contractor. The Department believes 

that these factors are often valued by 

workers in ways that are difficult to 

quantify. Furthermore, the Department 

believes that workers as a whole will 

benefit from this rule, both from 

increased labor force participation as a 

result of the enhanced certainty 

provided by the rule, and from the 

substantial other benefits detailed 

below. 

5. Minimum Wage and Overtime Pay 

As noted above, an additional 

consideration in the discussion of 

transfers is that minimum wage and 

overtime pay requirements would no 

longer apply if workers shift from 

employee status to independent 

contractor status. The 2017 CWS data 

indicate that, before conditioning on 

covariates, primary independent 

contractors are more likely than 

employees to report earning less than 

the FLSA minimum wage of $7.25 per 

hour (8 percent for self-employed 

independent contractors, 5 percent for 

other independent contractors, and 2 

percent for employees). 

Several commenters highlighted this 

possibility that independent contractors 

could earn below the minimum wage. 

The Washington Center cited a report by 

the Center of American Progress that 

estimated that almost 10 percent of 

independent contractors earn less than 

the Federal minimum wage.153

Representative Mark Takano pointed to 

literature finding that in California and 

New York many gig drivers receive 

significantly less than the state 

minimum wage.154 A letter from 107 

U.S. Representatives referenced an 

instance where the Wage and Hour 

Division (WHD) recovered roughly 

$250,000 in unpaid overtime and 

minimum wages for 75 workers 

misclassified as independent 

contractors by a cleaning company.155

EPI stated in its comment, ‘‘The workers 

most likely to be affected by this rule are 

workers in lower-wage occupations in 

labor-intensive industries, such as 

delivery workers, transportation 

workers like taxi drivers and some 

truckers, logistics workers including 

warehouse workers, home care workers, 

housecleaners, construction laborers 

and carpenters, agricultural workers, 

janitors, call center workers, and staffing 

agency workers in lower-paid 

placements.’’ However, EPI did not 

provide a source for this important 

assumption, and the Department was 

unable to verify EPI’s assertion in the 

Department’s own research. The nature 

of the work done by workers across the 

diverse fields EPI identified is 

uncertain, although many roles in the 


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156NELP, Independent Contractor 

Misclassification Imposes Huge Costs on Workers 

and Federal and State Treasuries, Oct. 2020, 

available at https://www.nelp.org/publication/

independent-contractor-misclassification-imposeshuge-costs-workers-Federal-state-treasuries-updateoctober-2020. 

157Lalith de Silva, Adrian Millett, Dominic 

Rotondi, and William F. Sullivan, ‘‘Independent 

Contractors: Prevalence and Implications for 

Unemployment Insurance Programs’’ Report of 

Planmatics, Inc., for U.S. Department of Labor 

Employment and Training Administration (2000), 

available at https://wdr.doleta.gov/owsdrr/00-5/00- 

5.pdf. 

158 Id. (emphasis added). 

159NELP, Independent Contractor 

Misclassification Imposes Huge Costs on Workers 

and Federal and State Treasuries, Policy Brief Oct. 

2020, available at https://www.nelp.org/

publication/independent-contractormisclassification-imposes-huge-costs-workersFederal-state-treasuries-update-october-2020/. 

160Employment Policy Institute. Carre, Francoise, 

(In)dependent Contractor Misclassification. https:// 

www.epi.org/publication/independent-contractormisclassification. 

161Report of the Ohio Attorney General on the 

Economic Impact of Misclassified Workers for State 

and Local Governments in Ohio 16–17 (Feb. 18, 

2009), available at https://iiiffc.org/images/pdf/

employee_classification/OH%20AG%20Rpt%20on

%20Misclass.Workers.2009.pdf. 

162 If 11 percent of businesses misclassify only 

one worker as an independent contractor, there are 

100 businesses, and each employer has 20 workers, 

then the total percentage of these misclassified 

workers is actually 0.5 percent. To find that 11 

percent of workers are misclassified as independent 

contractors, all of the businesses who misclassified 

workers as independent contractors would need to 

above fields could lack features that 

would facilitate a position conversion to 

independent contractor status. 

With respect to overtime, CWS has 

further indicated that, before 

conditioning on covariates, primary 

independent contractors are more likely 

to work overtime or extra hours beyond 

what they usually work at their main job 

(30 percent for self-employed 

independent contractors and 19 percent 

for other independent contractors versus 

18 percent for employees). The 

Department was unable to determine 

whether these differences were the 

result of differences in worker 

classification, as opposed to other 

factors. The Department has cited many 

sources throughout this analysis that 

point to a wide range of income for 

independent contractors, and does not 

believe that this rule will be especially 

applicable to any particular income 

segment of independent contractors. 

Accordingly, the Department believes it 

prudent to rely on the numerous sources 

it has drawn on in the development of 

this rule, rather than to focus on any 

particular slice of the income 

distribution. And while independent 

contractors are not, by definition, 

subject to the minimum wage 

requirements of the FLSA, none of the 

evidence cited by commenters suggests 

that the final rule is likely to 

significantly impact this issue, and if so, 

to what extent. Accordingly, the 

Department did not attempt to quantify 

these potential transfers. 

6. Misclassification 

Many commenters expressed 

concerns regarding misclassification of 

employees as independent contractors, 

which occurs when an individual who 

is economically dependent on an 

employer is classified by that employer 

as an independent contractor. FLSA 

misclassification may be inadvertent or 

intentional and its direct effects could 

include a transfer from the worker to the 

employer if the employer fails to pay 

minimum wage and overtime pay to 

which the worker is entitled. 

Conversely, reducing misclassification 

could result in a transfer from 

employers to workers. 

Several commenters believe that 

‘‘[c]larifying the application of the test 

for independent contractor status will 

promote compliance with labor 

standards under the FLSA and, in turn, 

reduce worker misclassification.’’ 

Opportunity Solutions Project (OSP); 

see also, e.g., Truckload Carriers 

Association (‘‘[t]he increased clarity 

provided by the [proposed rule] would 

likely lead to reduced 

misclassification.’’); IAW (‘‘This rule 

will clear up misclassifications’’); 

Financial Services Institute (‘‘we agree 

that it will reduce worker 

misclassification and litigation’’). Other 

commenters believe this rule may make 

it easier for employers to misclassify 

employees as independent contractors. 

See, e.g., Equal Justice Center; Employee 

Rights Center; NELP; State AGs; TRLA. 

These commenters cited reports 

purporting to show extremely high rates 

of misclassification. For example, a 

2020 NELP report cited by many 

commenters reviewed state audits and 

concluded that ‘‘these state reports 

show that 10 to 30 percent of employers 

(or more) misclassify their employees as 

independent contractors.’’ 156 The 

Washington Center also cited a study 

conducted by the Department of Labor 

in 2000 to claim that ‘‘between 10 

percent and 30 percent of employers 

audited in 9 states misclassified workers 

as independent contractors.’’ 157

These estimates, however, appear to 

be unreliable for at least two reasons. 

First, they make generalized 

conclusions regarding rates of 

misclassification using nonrepresentative audit data. For example, 

the Department’s 2000 study cited by 

the Washington Center states that audits 

were ‘‘selected on a targeted basis 

because of some prior evidence of 

possible non-compliance.’’ 158 The 2020 

NELP report likewise explained that 

‘‘[m]ost studies [on misclassification] 

rely on audit data from unemployment 

insurance and workers’ compensation 

audits, targeted or random.’’ 159 As a 

2015 EPI report explained, ‘‘[a]udit 

methods vary across states in the extent 

to which they target employers for 

audit: They can base the audits on 

specific criteria (e.g., a record of prior 

violation), or use a random sample of 

employers within industries prone to 

misclassification, or a mix of both 

methods.’’ 160 Thus, even ‘‘random’’ 

audits are not necessarily representative 

because they target industries with high 

rates of misclassification. Because 

audits focus on groups of businesses or 

industries in which misclassification 

rates are the highest, their results would 

not support generalized conclusions 

regarding the wider population. As 

such, the reports’ generalized 

conclusion lack reliable and 

representative evidence, and are almost 

certainly significant overestimates. 

Second, the audit data cited by NELP 

and others do not necessarily focus on 

misclassification of employees as 

independent contractors; some states’ 

data are evaluated based on prevalence 

of employer violations, which is not 

representative of percentages of workers 

misclassified as independent 

contractors. For example, the 2020 

NELP report appears to state that audits 

conducted by Ohio found a 

misclassification rate of 45 percent, but 

the cited Ohio report stated otherwise. 

The report explained that the audits 

searched for unemployment insurance 

violations, not just misclassifications, 

and that ‘‘45% of the audits produce 

findings, in many cases for workers 

misclassification.’’ 161 In other words, 

the Ohio audits found 45% of audited 

employers failed to comply with some 

unemployment insurance requirement, 

with an unspecified subset committing 

misclassification. This and other 

misunderstandings of state audit 

findings may result in a misleading 

estimate of the frequency with which 

employers misclassify employees as 

independent contractors. Furthermore, 

the reporting is based on 

misclassification (or other issues, as 

documented above) on a per employer 

basis. The employer rate of 

misclassification may not necessarily 

correspond to the rate of employee 

misclassification. For example, if an 

employer employs 100 employees and 

misclassifies only one of them, the 

employer is recorded as a misclassifying 

employer in the aggregated results.162


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have misclassified 100 percent of their workforce as 

independent contractors. 

163Wisconsin Department of Workforce 

Development, Payroll Fraud and Worker 

Misclassification Report 16 (2020), available at: 

https://dwd.wisconsin.gov/misclassification/pdf/

2019-2020-misclassification-task-force-report.pdf. 

164See Coalition for Workforce Innovation (2020), 

supra note 77. 

This binary approach to data collection 

on a per employer basis prevents a 

disambiguation to analyze the actual 

number of misclassified workers in the 

labor force. This phenomenon is present 

is another study conducted by the 

Wisconsin Department of Revenue cited 

by NELP, which claimed that ‘‘In 2018, 

44% of audited employers were found 

to be misclassifying workers.’’ 163

However, that data seems to be 

misleading for multiple reasons. First, 

the quotation does not appear to match 

the cited source. Appendix 2 of the 

Wisconsin Workforce Report states that 

in 2019 the ‘‘percentage of audited 

employers with misclassified workers’’ 

was 33.3 percent (divergent from the 

‘‘44 percent’’ that NELP stated). Second, 

the number of businesses found to be 

misclassifying workers does not address 

how many workers were misclassified. 

The percentage of workers misclassified 

was 10.6, across all of the audited 

employers, which is much smaller than 

either 33 or 44 percent. Finally, all of 

these estimates are compounded by the 

targeting bias described earlier, namely 

that the results only reflect businesses 

specifically targeted for audits, which 

presents only a partial picture of the 

incidence of such misclassification 

economy-wide. 

Ultimately, and as explained above in 

Section VI(G)(2), commenters’ estimates 

regarding current rates of 

misclassification—whether accurate or 

not—have little bearing on how 

misclassification rates are likely to 

change as a result of this rule. This rule 

establishes a clearer test for when a 

worker is an independent contractor 

rather than an employee under the 

FLSA. As such, it would reduce 

inadvertent misclassification by 

employers who are confused by the 

prior test, particularly small businesses 

that lack resources to hire expensive 

attorneys. For example, one small 

business owner commented to explain 

that ‘‘the ability to understand and 

properly determine worker status under 

the FSLA is paramount for small 

businesses who cannot afford the cost of 

litigation . . . I believe that with the 

proper transparency within the 

regulations, the better the outcome not 

only for small businesses, but the 

worker, and ultimately the care 

recipient. We want to comply, and I 

have confidence that the proposed [rule] 

. . . will be highly effective in 

achieving the desired clarity and 

certainty.’’ A clearer test also means 

more workers will better understand 

their rights under the FLSA and can 

defend those rights through private 

litigation or complaints to the 

Department, which should deter 

unscrupulous employers from 

intentionally misclassifying them. 

In summary, the Department believes 

that the simplicity and clarity this rule 

provides will reduce both inadvertent 

and intentional misclassification, which 

could produce transfers from employers 

to employees who are more likely to be 

correctly classified and given minimum 

wage and overtime pay. The Department 

is unable to calculate the exact transfer 

amount because it lacks reliable metrics 

on, for example, the existing 

misclassification rates in the general 

economy, the precise extent to which 

this rule improves legal clarity, and how 

firms will respond to that clarity. 

7. Job Conversion 

Many commentators expressed 

concerns that the rule would cause 

businesses to reclassify their workers as 

independent contractors, causing those 

workers to lose the benefits of the FLSA 

with little gain in return. See, e.g., 

Washington Center (asserting that 

‘‘independent contractors tend to be 

worse-off than their wage-and-salary 

counterparts’’); National Women’s Law 

Center (‘‘if finalized, this rule will cost 

workers . . . in the form of reduced 

compensation’’); EPI (estimating that 

converted ‘‘workers would lose $6,963 

per year’’). Some of these issues are 

discussed above. For example, the 

Department discussed possible earnings 

effects of workers converting from 

employee to independent contractor 

extensively in this section VI(D) and 

concluded it could not definitively 

determine whether overall 

compensation—i.e., earnings plus 

benefits—for a job that is converted 

from employee to independent 

contractor classification in response to 

this rule is likely to rise or fall on 

average. Regardless, the Department 

acknowledges that whether the overall 

effect of job conversion is likely to be, 

on balance, positive depends on the 

individual, reclassified worker, the 

unique circumstances of the business, 

and whether or not the working 

conditions were changed in order to 

reclassify the worker. 

If the converted position is an entirely 

new position, it is more likely to be 

filled by one of the many individuals 

who desire to work as an independent 

contractor, for example because they 

value the ‘‘flexibility to choose when 

and where to work’’ that the position 

may provide more than ‘‘access to a 

steady income and benefits.’’ 164 Such 

an individual may, for example, 

discount the value of certain types of 

compensation associated with employee 

classification, such as health insurance, 

that he or she might already enjoy from 

a different source. The individual may 

also simply prefer to trade overall 

compensation for the greater flexibility 

that often accompanies independent 

contractor roles. Thus, the lower paid 

converted new jobs do not necessarily 

reduce such workers’ welfare because 

they could offer tradeoffs that may be 

preferable to the workers who are most 

likely to sort themselves into those 

positions. On balance, the Department 

believes conversion of new jobs will 

have an overall positive impact on 

workers. 

The second category of job conversion 

discussed above occurs when employers 

modify their working relationship with 

existing employees such that they are 

rendered independent contractors under 

this rule. As explained above, to act on 

the legal certainty provided by this rule, 

the converted position likely would 

have to provide the worker with 

substantial control over the work and a 

meaningful opportunity for profit or 

loss. The Department believes such 

conversions will be less common than 

conversion of future positions because 

the marginal cost of restructuring an 

existing work arrangement is greater 

than altering the arrangement of an 

unfilled position. And such 

restructuring would disrupt the 

preexisting working relationships, 

which risks negatively impacting 

worker morale, productivity, and 

retention. Nonetheless, some conversion 

of existing positions may occur, and 

some converted workers may prefer the 

additional flexibility and earn more by 

taking advantage of the opportunity for 

profit or loss that may accompany the 

conversion. The effect of the rule would 

be positive for these workers. Other 

converted workers may prefer the 

security, stability, and other features of 

an employment relationship or earn less 

due to, for example, reduction of 

employer-provided benefits, 

employment taxes, and loss of the 

FLSA’s minimum wage and overtime 

pay. The effect of the rule would be 

negative for these converted workers, 

but, as explained above, the Department 

believes this type of conversion will be 

rare. 

Finally, an employer may reclassify 

an existing employee position to an 

independent contractor position 


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165Commenters in the business and freelancer 

community indicated that—rather than classify 

independent entrepreneurs as employee in response 

to legal uncertainty regarding classification— 

business simply decline to do business with those 

entrepreneurs in the first place. See, e.g., ASTA 

(‘‘The prospect of inconsistent determinations has 

had a chilling effect on the growth of businesses in 

industries reliant on contract workers which has 

resulted in fewer opportunities for individuals who 

choose to offer their services as independent 

entrepreneurs.’’); CPIE (‘‘uncertainty associated 

with worker classification under the FLSA . . . 

discourages companies from doing business with 

independent entrepreneurs’’). The effects described 

by these commenters are unsurprising. For 

example, it makes little sense for a business to 

classify a worker as an employee, thus obligating 

themselves to pay a premium rate for overtime work 

under the FLSA, if it is the worker and not the 

business who determines how many hours to work 

each week. Rather, the business likely would either 

not hire the worker at all or hire him or her as an 

employee but insist on controlling hours worked. 

166Most firms can already reduce the overall 

compensation of their employees whose wages 

exceed the minimum wage through more direct 

means than reclassification as independent 

contractors but do not do so because of risks 

regarding morale, productivity, and retention. 

167Employers and employees could make similar 

conversions to independent contractor status for 

reasons outside the sharpening of the economic 

reality test this rule provides. Such shifts would not 

be identified as impacts in this analysis because the 

impetus for such conversion is due to factors other 

than this rule. 

168This figure excludes workers under the age of 

19. If excluding workers under the age of 24, this 

figure drops over 40 percent to 221,000. This figure 

does not include workers who make less than the 

minimum wage, a vast majority of whom work in 

the restaurant industry and receive tips for their 

work. The average earnings of a restaurant worker 

who receives tips is significantly above the 

minimum wage. The figure includes part time 

workers, who would not likely receive overtime 

compensation due to the limited number of hours 

they work. 

169 In 2017, there were approximately 

152,000,000 workers in the U.S., according to the 

U.S. Bureau of Labor Statistics. 

without meaningfully changing the 

nature of the job in response to the 

added legal clarity provided by this 

rule. Employers could be most confident 

of such reclassification under this rule 

if the preexisting job already provided 

the worker with substantial control over 

the work and a meaningful opportunity 

for profit or loss. The Department 

believes this phenomenon is likely to be 

rare because the current position would 

have to be held by an individual who 

is in business for him- or herself as an 

economic reality but is nonetheless 

presently classified as an employee. 

While many commenters warned that 

economically dependent employees 

may be improperly classified as 

independent contractors, none 

expressed concern that there is 

widespread classification of individuals 

who are in business for themselves as 

employees.165 Such employees may 

nonetheless exist and be converted into 

independent contractors as a result of 

this rule. Features of these converted 

workers’ work, for example the level of 

flexibility and stability, would remain 

unchanged because the job remains the 

same. Firms could potentially reclassify 

existing workers who are already in 

business for themselves in a manner 

that reduces overall compensation, but 

their ability do to so would be 

constrained because such reduction 

could negatively impact worker morale, 

productivity, and retention.166

Nonetheless, the sharpening of the 

economic reality test may negatively 

impact some current employees who 

could be reclassified as independent 

contractors in a manner that results in 

reduced overall compensation but are 

not afforded non-pecuniary benefits, for 

example additional flexibility, in 

return.167 EPI and likeminded 

commenters believe these workers 

would be ‘‘doing the same job for 

substantially less compensation as an 

independent contractor,’’ and that this 

class of worker comprises the majority 

or even all of the workers impacted by 

this rule. The Department agrees that 

some workers could be impacted in this 

manner, but believes such occasions are 

likely to be rare because two necessary 

conditions limit the number of such 

workers. 

First, in order for conversion to have 

an unambiguously negative affect, a 

converted worker’s overall 

compensation must be at the minimum 

wage. Generally, firms impacted by the 

rule can already directly reduce wages 

and benefits of their employees—they 

do not need to convert those employees 

to independent contractor to achieve 

these labor cost savings. However, most 

firms do not reduce their employees’ 

compensation due to the risk of 

lowering morale, reducing productivity, 

and causing turnover. That is to say, the 

labor markets in which most firms 

operate prevents them from setting 

compensation without regard for worker 

preferences. The Department believes 

that a firms’ ability and willingness to 

reduce its employees’ compensation is 

shaped by the tradeoff between labor 

savings, on one hand, and the risk of 

lower productivity and higher turnover, 

on the other. Clarifying the legal 

requirement for firms to convert a 

position from employee to independent 

contractor status would not make firms 

any more willing or able to reduce 

compensation unless the worker was 

already earning the minimum wage and 

receiving no benefits. According to BLS, 

based on CPS data, in 2017 there were 

370,000 adult 168 employees paid at the 

minimum wage, which comprise 0.24 

percent of the U.S. labor force.169

Second and as explained above, the 

converted worker whose job remains 

unchanged is likely to already have 

substantial control over the work and a 

meaningful opportunity for profit or loss 

such that he or she can be classified as 

independent contractor with the most 

legal certainty this rule can provide. 

The Department was unable to 

determine how many of the 370,000 

current minimum wage employees also 

meet these two criteria, although it 

expects the number to be low. The 

Department attempted to identify 

examples of minimum wage employees 

who enjoy substantial control over their 

work and a meaningful opportunity for 

profit or loss, but was unable to do so. 

Nor did commenters provide specific 

data or examples of minimum wage 

employees who would meet these 

criteria. Several commenters argued that 

the Department failed to adequately 

consider the effects of these possible 

conversions from employee to 

independent contractor, or the potential 

negative effects of misclassification on 

workers. NELA, for instance, asserted 

that the NPRM’s cost-benefit analysis 

focused solely on companies rather than 

workers and further claimed that the 

Department ‘‘ignores the massive cost to 

misclassified workers.’’ Other 

commenters stated that the final rule 

would harm workers by either 

increasing the rate of misclassification 

or by allowing employers to reduce 

wages and benefits of employees who 

are converted into independent 

contractors. See, e.g., Washington 

Center for Equitable Growth 

(Washington Center) (asserting that 

‘‘independent contractors tend to be 

worse-off than their wage-and-salary 

counterparts’’); Appleseed Center 

(expressing concern that rule ‘‘will harm 

workers across a broad spectrum, [but] 

will have a disproportionate impact on 

Black and Hispanic workers who are 

overrepresented in the low-paying jobs 

where independent contractor 

misclassification is common’’); National 

Women Law Center (‘‘if finalized, this 

rule will cost workers . . . in the form 

of reduced compensation’’); EPI 

(estimating that individual ‘‘workers 

would lose $6,963 per year’’). 

As is explained in greater detail 

below, the Department disagrees with 

these comments that the rule will 

broadly harm workers. The Department 

agrees with the numerous commenters, 

including nearly all individual 

commenters who self-identified as 

freelancer workers, who asserted that 

the rule would encourage flexible work 

arrangements and thereby create 

meaningful—though not easily 

measurable— value for workers. One 


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170As explained in more detailed above, this is 

because most workers can be converted from 

employee into independent contractor classification 

only if they are provided with greater control over 

their work and opportunity for profit or loss based 

on their initiative or investment. Such flexibility 

and entrepreneurial opportunities may be more 

valuable to such workers than potential reduction 

in benefits associated with classification as 

employees. 

171An establishment is commonly understood as 

a single economic unit, such as a farm, a mine, a 

factory, or a store, that produces goods or services. 

Establishments are typically at one physical 

location and engaged in one, or predominantly one, 

type of economic activity for which a single 

industrial classification may be applied. An 

establishment contrasts with a firm, or a company, 

which is a business and may consist of one or more 

establishments. See BLS, ‘‘Quarterly Census of 

Employment and Wages: Concepts,’’ https://

www.bls.gov/opub/hom/cew/concepts.htm. 

172U.S. Census Bureau, 2017 SUSB Annual Data 

Tables by Establishment Industry. https://

www.census.gov/data/tables/2017/econ/susb/2017- 

susb-annual.html. 

173U.S. Census Bureau, 2017 Census of 

Governments. https://www.census.gov/data/tables/ 

2017/econ/gus/2017-governments.html. 

174These include Joint Employer Status under the 

Fair Labor Standards Act; Defining and Delimiting 

the Exemptions for Executive, Administrative, 

Professional, Outside Sales and Computer 

Employees; and Regular Rate Under the Fair Labor 

Standards Act. 

commenter explained that ‘‘[b]eing an 

independent worker allows for me to do 

what I can as a single mother, have 

flexibility.’’ Another stated that 

‘‘[f]reelancing has afforded me 

independence and flexibility and the 

opportunity to be a productive member 

of society, and do my best work.’’ As a 

final illustrative example, another 

commenter asserted that ‘‘[t]he primary 

value for myself as an independent 

contractor for my services is the 

freedom to negotiate, to choose, and the 

freedom to limit what services I provide, 

the days, and hours of work, and the 

price of my labor, unencumbered by the 

less flexible but more secure employer 

employee relationship.’’ Although some 

workers in positions converted from 

employees to independent contractor 

relationships may receive fewer benefits 

traditionally associated with 

classification as employees, the 

Department believes that this would 

likely be infrequent and their net effect 

would not necessarily be negative.170

Moreover, the Department believes any 

negative effects would be outweighed by 

the significant value the rule delivers to 

other workers and businesses by 

clarifying, simplifying, and reducing 

transaction costs around independent 

contractor arrangements. 

No commenter provided evidence or 

specific cases in which individuals or 

types of workers would, as a result of 

this rule, be converted from employees 

to independent contractors. Because the 

rule does not change the classification 

of any employee, any jobs converted 

without meaningful change would have 

had to already have satisfied the 

requirements of bona fide independent 

contracting arrangements under this 

rule, with the only change likely being 

a lower assessed litigation risk for 

certain businesses. While the number of 

workers for whom reclassification 

occurs without bringing them 

meaningful benefits may not be zero, the 

Department believes such cases will be 

rare exceptions. Even if the 

classification of a worker were to 

change, the business could face market 

forces that would likely hold overall 

compensation steady. Furthermore, 

businesses would need to take caution 

that any new contract relationship 

would neither damage worker relations 

nor its underlying business model, both 

of which would likely negatively impact 

productivity. 

In summary, the most common 

categories of job conversions—e.g., new 

positions—are likely to positively 

impact workers. And the category of job 

conversions that is likely to produce 

negative impacts—i.e., reclassification 

of workers without changes to the job— 

is most likely the rarest. For these 

reasons, the Department believes 

benefits to workers from job conversions 

will, on balance, exceed costs. 

E. Costs 

The Department considered several 

costs in evaluating the rule. The 

Department quantified regulatory 

familiarization costs and estimated that 

they will total $370.9 million in Year 1. 

Other potential costs, including those 

raised by commentators, were not 

quantified, for reasons explained in the 

sections that follow. 

1. Regulatory Familiarization Costs 

Regulatory familiarization costs 

represent direct costs to businesses and 

current independent contractors 

associated with reviewing the new 

regulation. To estimate the total 

regulatory familiarization costs, the 

Department used (1) the number of 

establishments, government entities, 

and current independent contractors; (2) 

the wage rates for the employees and for 

the independent contractors reviewing 

the rule; and (3) the number of hours 

that it estimates employers and 

independent contractors will spend 

reviewing the rule. This section presents 

the calculation for establishments first 

and then the calculation for 

independent contractors. 

For a rule like this one, it is not clear 

whether regulatory familiarization costs 

are a function of the number of 

establishments or the number of 

firms.171 Presumably, the headquarters 

of a firm will conduct the regulatory 

review for businesses with multiple 

locations, and also may require some 

locations to familiarize themselves with 

the regulation at the establishment level. 

Other firms may either review the rule 

to consolidate key takeaways for their 

affiliates or they may rely entirely on 

outside experts to evaluate the rule and 

relay the relevant information to their 

organization (e.g., a chamber of 

commerce). The Department used the 

number of establishments to estimate 

the fundamental pool of regulated 

entities—which is larger than the 

number of firms. This assumes that 

regulatory familiarization occurs at both 

the headquarters and establishment 

levels. 

There may be differences in 

familiarization cost by the size of 

establishments; however, the analysis 

does not compute different costs for 

establishments of different sizes. 

Furthermore, the analysis does not 

revise down for states where the laws 

may more stringently limit who 

qualifies as an independent contractor 

(such as California) and thus the new 

rule will have little to no effect on 

classifications. To estimate the number 

of establishments incurring regulatory 

familiarization costs, the Department 

began by using the Statistics of U.S. 

Businesses (SUSB) to define the total 

pool of establishments in the United 

States.172 In 2017, the most recent year 

available, there were 7.86 million 

establishments. These data were 

supplemented with the 2017 Census of 

Government that reports 90,075 local 

government entities, and 51 state and 

Federal government entities.173 The 

total number of establishments and 

governments in the universe used for 

this analysis is 7,950,800. 

The applicable universe used by the 

Department for assessing familiarization 

costs of this final rule is all 

establishments that engage independent 

contractors, which is a subset of the 

universe of all establishments. In its 

analyses, the Department estimates the 

impact of regulatory familiarization 

based upon assessment of the regulated 

universe. In several recent rulemakings, 

the Department estimated that the 

regulated universe comprised all 

establishments because the rules were 

broadly applicable to every employer.174

For those rules, the Department 

estimated familiarization costs by 

assuming each establishment would 

review each rule. Because this final rule 

affects only some establishments, i.e., 


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175Table 10: Firm sample summary statistics by 

year (2001–2015), https://www.irs.gov/pub/irs-soi/ 

19rpindcontractorinus.pdf. 

176An added dimension is that the final rule is 

expected to provide significant clarity, which 

would result in time and cost savings (net of 

regulatory familiarization costs) for those outside 

the pool of firms with existing independent 

contractor relationships. These (net) cost savings 

are not included in this analysis, consistent with 

this analysis’ treatment of resulting growth in the 

independent contractor universe. 

177A Compensation/Benefits Specialist ensures 

company compliance with Federal and state laws, 

including reporting requirements; evaluates job 

positions, determining classification, exempt or 

non-exempt status, and salary; plans, develops, 

evaluates, improves, and communicates methods 

and techniques for selecting, promoting, 

compensating, evaluating, and training workers. See 

BLS, ‘‘13–1141 Compensation, Benefits, and Job 

Analysis Specialists,’’ https://www.bls.gov/oes/ 

current/oes131141.htm. 

178An independent contractor that hires 

independent contractors would already be captured 

in the ‘‘establishment’’ calculation. 

179For example, independent contractors in states 

with classification frameworks that are known to be 

more stringent than the existing FLSA classification 

framework, such as in California, may not review 

the rule since it would be unlikely to affect their 

classification. 

180As explained below, the Department considers 

that the regulation may produce benefits along this 

dimension in future years by simplifying the 

regulatory environment. 

those that currently or may in short 

order face an independent contractor 

versus employee classification 

determination, the Department 

accordingly reduces the estimated pool 

to better estimate the establishments 

affected by the rule by assessing 

regulatory familiarity costs only for 

those establishments that engage 

independent contractors. 

In 2019, Lim et al. used extensive IRS 

data to model the independent 

contractor market, finding that 34.7 

percent of firms hire independent 

contractors.175 These data are based on 

annual tax filings, so the dataset 

includes firms that may contract for 

only parts of a year. The 34.7 percent of 

establishments provides a figure of 

2,758,928, which forms the foundation 

of the multiplier used in this analysis. 

The Department did not estimate 

familiarization costs for companies that 

may decide to work with independent 

contractors only after the new rule is 

finalized, because they would need to 

familiarize themselves with the current 

legal framework even in the absence of 

this rule.176 Although firms that do not 

currently use independent contractors 

are not counted in this universe of 

employers, to allow for an error margin, 

the Department is using a rounded 35 

percent of the total number of 

establishments defined above 

(7,950,800), resulting in 2,782,780 

establishments estimated to incur 

familiarization costs. 

The Pennsylvania Department of 

Labor & Industry (PA L&I) commented 

that the Department underestimated the 

cost of the rule by failing to include 

businesses that are newly incentivized 

to consider reclassifying workers to 

independent contractors. As stated 

above, even without the new rule any 

firm that does not currently engage any 

independent contractors but chooses to 

do so in the future would have already 

had to familiarize itself in the baseline 

case, so this rule does not impact those 

firms. Since the commenter’s point is 

premised on the fact that the firm may 

be incentivized to investigate the 

regulation, it would be reasonable to 

assume that any firm without 

independent contractors that reviews 

the new rule and ultimately decides to 

hire independent contractors is doing so 

because the firm believes the new 

relationship will be beneficial to itself 

and the independent contractor also 

believes that the new relationship will 

be beneficial to him or herself. Such a 

situation would result in net benefits to 

the employer that more than fully 

compensate for any familiarization 

costs. Notably, and for comparability in 

estimates, the Department does not add 

these potential firms to the Benefits 

section either. 

The Department assumes that a 

Compensation, Benefits, and Job 

Analysis Specialist (SOC 13–1141) (or a 

staff member in a similar position) will 

review the rule.177 According to the 

Occupational Employment Statistics 

(OES), these workers had a mean wage 

of $33.58 per hour in 2019 (most recent 

data available). Given the proposed 

clarification to the Department’s 

interpretation of who is an employee 

and who is an independent contractor 

under the FLSA, the Department 

assumes that it will take on average 

about 1 hour to review the rule as 

proposed. The Department believes that 

an hour, on average, is appropriate, 

because while some establishments will 

spend longer than one hour to review 

the rule, many establishments may rely 

on third-party summaries of the changes 

or spend little or no time reviewing the 

rule. Assuming benefits are paid at a 

rate of 46 percent of the base wage, and 

overhead costs are 17 percent of the 

base wage, the reviewer’s effective 

hourly rate is $54.74; thus, the average 

cost per establishment conducting 

regulatory familiarization is $54.74. 

Therefore, regulatory familiarization 

costs to businesses in Year 1 are 

estimated to be $152.3 million ($54.74 

× 2,782,780) in 2019 dollars. 

For regulatory familiarization costs for 

independent contractors, the 

Department used its estimate of 18.9 

million independent contractors and 

assumed each independent contractor 

will spend 15 minutes to review the 

regulation. The average time spent by 

independent contractors is estimated to 

be smaller than for establishments. This 

difference is in part because the 

Department believes independent 

contractors are likely to rely on 

summaries of the key elements of the 

rule change published by the 

Department, worker advocacy groups, 

media outlets, and accountancy and 

consultancy firms, as has occurred with 

other rulemakings. Furthermore, the 

repercussions for independent 

contractors are smaller (i.e., the 

litigation costs, damages, and penalties 

associated with misclassification tend to 

fall on establishments).178 This time is 

valued at $46.36, which is the mean 

hourly wage rate for independent 

contractors in the CWS, $27.27, with an 

additional 46 percent benefits and 17 

percent for overhead, then updated to 

2019 dollars. Therefore, regulatory 

familiarization costs to independent 

contractors in Year 1 are estimated to be 

$218.6 million ($46.36 × 15 minutes × 

18.9 million). 

The estimate of 18.9 million 

independent contractors captures the 

universe of workers over a one-year 

period. Using this figure for the overall 

cost estimate results in an artificially 

high value because it includes workers 

who would have otherwise been 

included in the baseline case without 

the rule and thus spent time 

familiarizing themselves with the legal 

framework in the matter of course, 

without incurring a supplementary cost. 

Furthermore, the Department believes 

that it is probable that independent 

contractors would review the regulation 

only when they had reason to believe 

that the benefits would outweigh the 

costs incurred in familiarizing 

themselves with the rule, and since this 

analysis does not attempt to calculate 

those economic benefits it is possible 

that the costs presented in this section 

are overestimated.179

The total one-time regulatory 

familiarization costs for establishments 

and independent contractors are 

estimated to be $370.9 million. 

Regulatory familiarization costs in 

future years are assumed to be de 

minimis. Similar to the baseline case for 

employers, independent contractors 

would continue to familiarize 

themselves with the applicable legal 

framework in the absence of the rule, so 

this rulemaking—anticipated to provide 

more clarity—is not expected to impose 

costs after the first year.180 This 


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181 Various commenters to the NPRM raised 

points that they considered ‘‘costs,’’ although those 

points may more accurately be defined as transfers 

under Executive Order 12866. To clearly address 

these points, the Department decided to address the 

following areas with the language used by 

commenters. For further discussion of related 

impacts, please see the Potential Transfers section. 

182 In some cases, commenters raised points that 

may very well impact certain individuals in 

specialized circumstances, but which are not, when 

aggregated across the economy as a whole, 

cumulatively significant or representative. 

183The Department has not conducted a thorough 

review of discrimination law at the Federal or state 

level for the purposes of this rulemaking, but notes 

that independent contractors are protected by at 

least some Federal anti-discrimination laws. See, 

e.g., 42 U.S.C. 1981. Further, the scope of these laws 

is not dependent on employee status under the 

FLSA. See, e.g., Gulino v. New York State Educ. 

Dep’t, 460 F.3d 361, 379 (2d Cir. 2006) (‘‘[T]he 

Supreme Court has given us guidelines for 

discerning the existence of an employment 

relationship [in the race-discrimination context]: 

Traditional indicators of employment under the 

common law of agency.’’); Weary v. Cochran, 377 

F.3d 522, 524 (6th Cir. 2004) (‘‘[T]he proper test to 

apply in determining whether a hired party is an 

employee or an independent contractor under the 

[Age Discrimination in Employment] Act is the 

‘common law agency test.’ ’’). 

amounts to a 10-year annualized cost of 

$43.5 million at a discount rate of 3 

percent or $52.8 million at a discount 

rate of 7 percent. 

SWACCA commented that regulatory 

familiarization costs were 

underestimated because they ‘‘would 

not only be imposed upon adoption of 

a final rule but would be ongoing as 

stakeholders begin to understand 

whether and how it will be applied.’’ 

Additionally, they asserted the costs for 

businesses to familiarize themselves 

with the new guidance would exceed 

the cost of familiarization for the 

existing guidance, a claim that the 

commenter did not substantiate with 

data. The Department disagrees with 

this assertion. The rule is expected to 

reduce the time spent analyzing how the 

economic reality test’s factors interact. 

Accordingly, the Department reiterates 

that incremental regulatory 

familiarization costs in future years are 

expected to be de minimis. 

A number of commenters expressed 

support for the cost estimates. The CGO 

states that, ‘‘As currently written, the 

proposed rule carefully quantifies the 

cost savings of reduced litigation and 

increased clarity.’’ AFPF posited that, if 

anything, the calculations would tend to 

reflect ‘‘an overstatement of regulatory 

familiarization costs.’’ 

2. Other Costs 181

It is possible this rule will result in 

costs beyond the above described 

familiarization costs. In the NPRM, the 

Department invited comments and data 

on potential other costs of this rule. The 

Department received comments 

responsive to these requests which 

generally fell into seven categories: 

Impacts to workers; impacts to tax 

revenues; impacts on competition; 

impacts on income inequality and to 

minorities and women; tax filing; 

implementation; and impacts on income 

stability. The Department evaluated all 

of the potential costs that were 

identified, and examined many of the 

citations provided. In general, the 

commenters did not provide ample data 

or other evidence to support their 

claims, and, upon review, the 

Department was unable to confirm or 

substantiate the proposed cost 

categories in its own research. 

Therefore, in this section of the analysis, 

the Department addresses the points 

raised and discusses the qualitative 

merits, but does not quantify estimates 

for inclusion in its top line figures.182

Detailed explanations are presented in 

each category below, including 

discussion of the range of uncertainties 

and data limitations identified. 

a. Additional Impacts to Workers 

Several commenters asserted that the 

NPRM’s discussion of costs did not 

include a discussion of effects on 

workers beyond minimum wage and 

overtime pay. Ironworkers Local Union 

7 stressed the importance of benefits 

such as workers’ compensation for the 

dangerous nature of the work of their 

members and other construction 

workers. The Center for Law and Social 

Policy (CLASP) noted that the rule 

could also impact other benefits based 

on the FLSA’s definition of 

employment, such as access to paid sick 

leave in general and under the Families 

First Coronavirus Response Act 

(FFCRA). The Washington Center, 

among others, contended it may also 

impact workers’ rights to join a union. 

The International Brotherhood of 

Teamsters commented that the 

liquidated damages remedy for willful 

or bad faith violations of the FLSA is 

not available to workers who are 

classified as independent contractors. 

Other commenters asserted that 

independent contractors are also not 

protected by the Federal antidiscrimination and health and safety 

statutes, and that the Department failed 

to consider this effect.183

These potential impacts do not 

change the Department’s overarching 

view that workers as a whole will be 

better off as a result of this rule, even 

if some workers may not be better off. 

Generally speaking, the above 

commenters raise points that 

fundamentally rest on the assumption 

that independent contractors cannot 

adequately assess their risks, needs, and 

goals. Furthermore, these commentators 

seem to assume that the listed features 

could be obtained by workers with no 

cost to the worker. The Department does 

not agree with such assessments. The 

Independent Women’s Forum stated 

that the flexibility afforded by 

independent contracting is especially 

‘‘crucial for women who are the primary 

caregivers in their households.’’ 

Palagashvili; Independent Women’s 

Forum (‘‘Women find independent 

contracting appealing because of the 

flexibility, autonomy, and freedom it 

provides.’’). Nor did individual 

freelancer commenters, who repeatedly 

affirmed their ability to make rational 

decisions for themselves and their own 

businesses. One such commenter stated 

that ‘‘I prefer the option to make my 

own schedule and decide how I want to 

proceed in making my money at my 

own discretion.’’ Another explained 

that, ‘‘[a]s an independent contractor I 

am free to choose when and where I 

work. This is important to me as a 

caregiver for elderly relatives.’’ As a 

final illustrative example, a freelancer 

stated that ‘‘I have chosen this 

profession because of the freedom and 

flexibility it affords me. I also can earn 

more freelancing than I could working 

in a similar full-time job [. . .]. I am a 

far better judge of what is good for me 

than a politician in Washington.’’ 

Independent workers are a bedrock of 

the U.S. economy and are acutely aware 

of their own values and needs. 

Fundamental to being an independent 

contractor is the ability to control one’s 

own work, which enables workers to be 

the deciding factor in accepting or 

declining work that may be risky or not 

as rewarding. The commenters above 

did not cite or offer data to support their 

assumption that employees covered by 

the FLSA are intrinsically better off 

compared to genuine independent 

contractors who are not covered by the 

FLSA. Several commenters, notably 

CLASP and NWLC, who submitted 

comments related to the pandemic do 

not address the abundant data 

demonstrating that access to 

independent contracting has been 

essential for many workers attempting 

to balance responsibilities, especially 

for women and caregivers. Accordingly, 

to the extent the final rule will increase 

the frequency of independent 

contracting, the Department believes 

that workers will, on net, benefit from 

that option. 


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184C. Benner, E. Johansson, K. Feng, and H. Witt. 

‘‘On-Demand and On the Edge: Ride-Hailing & 

Delivery Workers in San Francisco’’ (May 5, 2020), 

https://transform.ucsc.edu/on-demand-and-on-theedge. 

185Unemployment Insurance Weekly Claims 

Report (October 15, 2020), https://oui.doleta.gov/ 

press/2020/101520.pdf. 

186 D. Belman and R. Block, ‘‘Informing the 

Debate: The Social and Economic Costs of 

Misclassification in the Michigan Construction 

Industry,’’ Institute for Public Policy and Social 

Research, Michigan State University (2008), http:// 

ippsr.msu.edu/publications/ARMisClass.pdf. F. 

Carre, ‘‘(In)dependent Contractor 

Misclassification,’’ EPI Briefing Paper #403 (June 8, 

2015), https://files.epi.org/pdf/87595.pdf. O. Cooke, 

D. Figart, J. Froonjian, and K. Sloane, ‘‘The 

Underground Construction Economy in New 

Jersey,’’ Stockton University (2016), https://

www.mcofnj.org/wp-content/uploads/2018/05/ 

Underground-Construction-Economy-SummaryJune-2016.pdf. 

187L. Xu and M. Erlich, ‘‘Economic Consequences 

of Misclassification in the State of Washington.’’ 

Harvard Law School Labor and Worklife Program 

(2019), https://lwp.law.harvard.edu/news/workermisclassification-washington-state-leads-millionsrevenue-losses-new-harvard-report. 

b. Impacts to Tax Revenue and Public 

Assistance 

Some commenters asserted that the 

rule will either reduce tax revenue or 

increase public assistance. For example, 

some commenters pointed out that lowincome workers who are classified as 

independent contractors are often forced 

to rely on public assistance programs. 

The UFCW cites a study finding 15 

percent of platform workers in the San 

Francisco area receive some form of 

public support (e.g. food stamps, 

housing assistance) and 30 percent were 

on state public-access health 

insurance.184 This report did not, 

however, compare this finding with the 

extent to which low-income employees 

rely on public assistance. The 

Department notes that public assistance 

is available to low-income individual 

whether they are employees or 

independent contractors. An increase in 

independent contracting will not 

necessarily lead to increased public 

assistance expenditures. To the 

contrary, if independent contracting, 

even at a low income, is the alternative 

to unemployment or nonparticipation in 

the labor force, then it would reduce 

means-tested public assistance 

expenditures. Several individual 

commenters suggested that they would 

not be working at all but for 

independent contractor opportunities. 

One commenter said, ‘‘I am an 

independent contractor, i.e. business 

owner; I am self-employed. I would not 

be able to work in any capacity, other 

than self-employed.’’ Another 

explained, ‘‘I am 71 years old and 

cannot (and will not) take regular 

employment. Earning an income from 

my home is safer, more effective and 

more satisfying.’’ As a final illustrative 

example, a woman explained that ‘‘[a]s 

a single mother trying to go back to 

school I have day and night classes. 

Having a regular job during this time be 

[sic] very challenging to meet my school 

hours.’’ Thus, making it easier for 

individuals to work as independent 

contractors may reduce the burden on 

public assistance. Furthermore, since 

this RIA focuses on the changes at the 

margin based on increased clarity of the 

classification factors, the concerns 

raised by the studies cited by these 

commenters would not necessarily 

apply to those this rule impacts. 

Several commenters noted that 

taxpayers funded unemployment 

payments for independent contractors 

through the Pandemic Unemployment 

Assistance (PUA) program. SWACCA 

noted that more than 11 million selfemployed individuals have received 

assistance from PUA.185 The nationwide 

response to the COVID–19 pandemic 

was intentionally robust. PUA 

assistance was funded by Congress in 

the CARES Act. 

Several commenters noted that any 

shift from employees to independent 

contractors will result in lost tax 

revenue. Specifically, the Michigan 

Regional Council of Carpenters cites 

estimates of the loss in taxes in 

Michigan and other states due to 

misclassification.186 Notably, 

misclassified workers are not the same 

as independent contractors. In fact, this 

rule clarifies the classification of 

workers and is expected to result in 

fewer total cases of misclassified 

workers. The Department does not agree 

with the assumptions about the U.S. 

labor market held by commenters to this 

rule that reference studies on the cost of 

misclassified workers. EPI estimated 

that the increase in workers classified as 

independent contractors will lead to a 

transfer of at least $750 million annually 

from social insurance funds. EPI’s 

estimate is predicated on an assumption 

that eligibility for independent 

contractors to receive unemployment 

benefits ‘‘will occur in future 

recessions.’’ The unprecedented CARES 

Act funded unemployment benefits 

through PUA for the first time in 

history. EPI’s entire estimate rests on 

such unprecedented relief becoming 

commonplace, a view which the 

Department does not share. The 

Washington Center cites a study by 

Harvard Law School’s Labor and 

Worklife program that ‘‘found that 

between 2013 and 2017, the state of 

Washington lost $152 million in 

unemployment taxes and the Federal 

government lost $299 million in payroll 

taxes due to worker misclassification in 

the state.’’ 187 Again, worker 

misclassification is erroneously 

compared to independent contractors. 

Further, the majority of these estimates 

of lost revenue are due to an assumption 

that freelance workers do not report 

their full earnings, which is a criminal 

offense. A letter from seven 

Congressional Representatives cited a 

1984 IRS estimate that misclassification 

cost the Federal government $3.72 

billion (adjusted to 2019 dollars), nearly 

60 percent of which was from 

misclassified workers failing to pay 

income taxes and the remainder was 

due to failure to pay taxes used to fund 

social insurance programs. Once again, 

this comment failed to meaningfully 

explain how the studies it cites can be 

extrapolated across independent 

contractors. 

The Department notes that certain 

employer required taxes, such as 

unemployment insurance and workers’ 

compensation, are not required for 

independent contractors, and thus the 

associated tax revenue will decrease if 

more individuals choose to work as 

independent contractors. However, the 

lack of transfer means that the worker 

keeps more money, which may be saved 

to provide for periods of 

unemployment. Additionally, these are 

transfer programs where the benefits are 

paid to the workers who pay into the 

program through their employers. Thus, 

if independent contractors are not 

eligible to participate in these program, 

government expenditures would also 

decrease. Therefore, providing 

unemployment benefit or workers’ 

compensation to independent 

contractors is generally not a cost to 

state and local governments. To 

demonstrate, consider unemployment 

programs, which are a type of insurance. 

Reduced unemployment taxes are 

generally offset by reduced 

unemployment benefits. The only direct 

cost would be if workers who no longer 

pay into these programs continue to 

receive benefits. These direct costs are 

expected to be small. 

Government revenue from other taxes, 

such as income and Medicare taxes, 

may go up or down as a result of this 

rulemaking depending on the total 

income of employers, employees, and 

independent contractors. However, a 

decrease in tax revenue due to a failure 

of some independent contractors to fully 

pay their required taxes is not a cost 

attributable to the Department’s 

rulemaking revising the standards for 

independent contractor status under a 


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188UPS does not use independent contractors for 

some of the roles or occupations that its largest 

competitor, FedEx, does. FedEx relies heavily on 

independent contractors for its business model, and 

recently won a legal case against the National Labor 

Relations Board, in which the court found that 

certain FedEx drivers were legitimately classified as 

independent contractors under the NLRA. See 

FedEx Home Delivery v. NLRB, 893 F.3d 1123No. 

14–1196 (D.C. Cir. 2017). 

189 Independent contractor relationships provide 

flexibility to accommodate individual worker 

needs, such as child care and breastfeeding. 

190 Including E. Handwerker and others. 

‘‘Increased Concentration of Occupations, 

Outsourcing, and Growing Wage Inequality in the 

United States,’’ (2015), https://

www.semanticscholar.org/paper/IncreasedConcentration-of-Occupations%2C-and-GrowingHandwerker-Abraham/ 

f7d0d2c9cfcbf53f961bb07a2542abefe4be84c0?p2df. 

191 Id. at 13 (emphasis added). 

192 If, for example, the platform were to transfer 

some of these increased earnings to consumers in 

the form of discounts, the demand quantity for the 

services (and thus the job opportunities for the ICs) 

could increase. 

193Cody Cook, et al., The Gender Earnings Gap 

in the Gig Economy: Evidence From Over a Million 

Rideshare Drivers, NBER Working Paper No. 24732, 

June 2018, available at https://www.nber.org/ 

system/files/working_papers/w24732/w24732.pdf. 194 Id. at 14. 

Federal law separate and apart from any 

tax law. 

Finally, the Department notes that 

overall state and local tax revenue may 

increase as a result of the efficiency and 

flexibility this rule promotes. The 

Department believes that legal clarity 

provided by this rule will result in, 

among other things, lower regulatory 

compliance and litigation costs, more 

efficient and innovative work 

arrangements, and new jobs for 

individuals who otherwise would not 

work. All of this could increase firms’ 

profits and workers’ incomes, which 

results in a larger pool from which state 

and local taxes are drawn. The overall 

positive effect on state and local tax 

revenue may dwarf, for example, any 

reduction in unemployment insurance 

or workers compensation taxes. The 

Department, however, declines to 

quantify net effects on state and local 

tax revenue because it believe any such 

attempt to do so would require too 

many assumptions. 

c. Fair Competition 

Several commenters stated that 

expanding the scope of independent 

contractors will ‘‘fuel a race to the 

bottom,’’ where companies will feel 

pressure to classify workers as 

independent contractor to reduce labor 

costs in order to compete in their 

market. UPS claimed that companies 

misclassifying workers as independent 

contractors externalize their costs and 

hurt other businesses through unfair 

competition.188 The Department 

believes that this will be unlikely 

because the risks of losing workers 

likely prevents businesses from 

reducing overall compensation, which 

includes the fully burdened wage rate 

(i.e., with taxes and benefits included). 

Any decrease in compensation below 

this level would likely result in firms 

not being able to hire adequate labor 

(either quantity or quality). This rule 

does not, as some commenters claimed, 

expand the scope of permissible 

independent contracting arrangements 

but rather clarifies and sharpens the test 

for determining proper classification, 

which is expected to benefit both 

workers and firms. 

d. Income Inequality and Impacts on 

Minorities and Women 

Some commenters asserted that the 

rule could increase racial and gender 

income inequality. NWLC wrote that 

additional protections other than 

minimum wage and overtime pay 

afforded by the FLSA were particularly 

important for working women, such as 

‘‘employer obligations to accommodate 

breastfeeding workers’’ 189 and 

‘‘protections against pay 

discrimination.’’ The Washington 

Center cited a study on outsourcing that 

it believed shows independent 

contracting ‘‘has contributed to 

increased wage inequality in the United 

States.’’ 190 But the cited study actually 

found something different: ‘‘the 

increased concentration of typically 

low-wage occupations over time can be 

explained by changes in the 

characteristics of establishments 

employing these occupations.’’ 191 In 

other words, the study linked wage 

inequality to employers outsourcing 

jobs to other employers that paid lower 

wages, and made no attempt to isolate 

the effects of independent contracting. 

The evidence discussed in this analysis 

shows that independent contractors 

often earn more than their employee 

counterparts further undermines the 

commenter’s assertion. 

UFCW wrote that ‘‘[t]he proposed 

regulation fails to address its potential 

impact on people of color who are 

overrepresented in low-wage 

independent contractor positions such 

as app-based platform work.’’ This rule 

clarifies for app-based platforms how to 

properly classify workers, thereby 

reducing regulatory compliance, 

litigation, and transaction costs. Some of 

these cost savings could be shared by 

app-based workers in the form of 

increased earnings, bonuses, or more job 

opportunities.192 To the extent that 

certain racial groups make up a 

disproportionate share of app-based 

workers, those groups will also enjoy a 

disproportionate share of benefits. 

Regarding gender-based inequality in 

the gig economy, a recent NBER study 

found that the gender wage gap among 

on-demand rideshare workers is lower 

than that of the rest of the economy and 

is ‘‘entirely attributed’’ to differences in 

experience and preferences.193 The 

NBER study specifically found that 

‘‘discrimination is not creating a gender 

gap in this setting,’’ and ‘‘no other paper 

has ever estimated such a precise ‘zero’ 

gender gap in any setting.’’ 194 Several 

commenters cited other studies that 

document measurable benefits of 

independent contractor opportunities 

for women. Dr. Liya Palagashvili 

provided a lengthy review of the 

literature on the beneficial impacts of 

independent contract work for women. 

She cited a study that finds that women 

are the main caregivers at home, and 96 

percent of women ‘‘indicate that the 

primary benefit of engaging in platformeconomy work is the flexible working 

hours.’’ See also Independent Women’s 

Forum (‘‘Women find independent 

contracting appealing because of the 

flexibility, autonomy, and freedom it 

provides.’’). A McKinsey Global 

Institute study, discussed in an earlier 

section, found that independent work 

offers caregivers, who are 

predominantly women, access to 

economic opportunity they would 

otherwise not have, concluding that 

‘‘[t]his type of flexibility can ease the 

burden on financially stressed 

households facing logistical 

challenges.’’ Dr. Palagashvili cited 

numerous other studies that are 

consistent in their findings: Women are 

very much attracted to work 

arrangements that offer flexibility, 

including one that finds ‘‘75 percent of 

self-identified homemakers, or stay-athome mothers in the United States, 

indicated they would be likely to return 

to work if they were to have flexible 

options.’’ These studies offer data based 

on primary research, and several 

sources are based on economy-wide 

survey data. 

Dr. Palagashvili’s comments are 

supported by many individual women 

who commented to affirm that 

independent contracting provides 

necessary flexibility to balance their 

work and life priorities. One woman 

explained that ‘‘[a]s a work-at-home 

mom, I ramped up my business to 

coincide with the time I had available 

while raising my kids. I worked during 

their nap times, and then added more 

hours as they went to school.’’ Another 


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195Based on the difference in estimates of 

burdens for businesses and nonbusinesses from the 

table ‘‘Estimated Average Taxpayer Burden for 

Individuals by Activity’’ in U.S. Internal Revenue 

Services, ‘‘1040 and 1040–SR Instructions,’’ p. 101, 

(2019), https://www.irs.gov/pub/irs-pdf/i1040gi.pdf. 

196All workers are required to file with the IRS 

regardless of classification. The time and cost of tax 

filing is highly dependent on the individual 

circumstances of the workers. The Department 

believes workers are able to best assess the costs 

and benefits of tax filing. 

197Prudential Research, ‘‘Gig Workers in 

America’’ (2017), https://www.prudential.com/ 

media/managed/documents/rp/Gig_Economy_

Whitepaper.pdf. 

198See 151 Ph.D. Economists and Political 

Scientists in California, ‘‘Open Letter to Suspend 

California AB–5’’ (April 14, 2020). 199Coalition for Workforce Innovation (2020), 

supra note 77. 

stated, ‘‘I have been a military spouse 

for 17 years and the ability to work as 

an independent contractor has been 

invaluable to my family. Through every 

move, my job comes with me; all I need 

is a computer and access to the internet. 

Had I been forced to find a new job with 

each [change of station], our family 

would have had some very tough 

times.’’ As a final illustrative example, 

a woman informed the Department that, 

‘‘I have been an independent contractor 

for more than 3 decades; it helped me 

as a single mother and now it helps me 

help the kids with my granddaughter.’’ 

The Department agrees with the above 

commenters and data indicating that 

women would benefit from greater 

access to independent contracting 

opportunities. By clarifying how 

workers can be properly classified as an 

independent contractor, this rule 

promotes the formation of such 

opportunities. 

e. Tax Filing Costs 

The AFL–CIO and the Washington 

Center commented that independent 

contractors have more time-intensive 

accounting and tax filing processes, and 

the Department should address these 

costs. The Washington Center claims 

that it is inappropriate to quantify time 

savings from increased clarity but not to 

quantify the increased time necessary to 

file taxes, which they estimate to 

amount to $832.3 million annually. 

Even assuming independent contractors 

spent more on their tax filings than 

employees, the Washington Center’s 

estimate is based on average costs for all 

business filers in the country, drawn 

from the IRS’s ‘‘Estimated Average 

Taxpayer Burden for Individuals by 

Activity’’ Table in its 2019 instructions 

on form 1040.195 This group of business 

filers includes anyone with income from 

rental property, royalties, S corporation 

earnings, farming, and other business 

ventures, which dramatically expands 

the scope beyond independent 

contractors. The Washington Center 

neither attempts to adjust for this 

overestimate nor explain how one might 

disentangle the conflated grouping, so 

the Department was unable to assess 

whether a real impact can be expected. 

The Department noted in the NPRM that 

it did not attempt to quantify the 

numerous benefits that it expects from 

the increased clarity regarding 

classification. Instead, it assumed that 

market actors operate in their own best 

interest, noting that for those workers 

that choose to pursue work as an 

independent contractor, as opposed to 

an employee, and file taxes as such it 

can be assumed that they have correctly 

determined for themselves that the 

benefits outweigh the costs, including 

any costs associated with increased time 

spent on tax filings.196

f. Implementation Costs 

The PA L&I asserted that the 

Department ‘‘provided zero estimates 

for the cost of actual implementation of 

the regulation.’’ PA L&I also claimed 

that implementation costs include 

reclassifying current workers and 

identifying the employment status of 

new hires. Concerning the first, the 

Department maintains that workers will 

only be reclassified when the benefits to 

businesses outweigh the costs. 

Concerning the later, the Department 

believes there will be a cost savings 

when new employment relationships 

must be analyzed (see following section 

on cost savings). The Department 

believes the implementation costs will 

be de minimis. 

g. Income Stability 

Several commenters asserted that 

independent contracting is associated 

with more volatile earnings. The 

Washington Center asserted that income 

stability is important for these workers 

and their families. UFCW cited 

literature finding that inconsistent 

earnings are one of the most reported 

disadvantages to gig work.197

The Department agrees that income 

volatility may be problematic for some 

workers and may require better money 

management to smooth consumption 

over periods of higher and lower 

income. However, as stated above, the 

Department assumes that market actors 

operate in their own best interest, and 

if a worker chooses to pursue work as 

an independent contractor, as opposed 

to an employee, it can be assumed that 

the worker has determined for himself 

or herself that the benefits outweigh the 

costs. The Department also believes 

income security is best achieved by 

removing barriers that prevent laid-off 

Americans from finding paid work, 

including as independent contractors. 

This lesson may be more important in 

the wake of the COVID–19 emergency, 

a point that has been presented by 

hundreds of academics.198 Additionally, 

some literature indicates that many 

independent contractors value 

flexibility over income stability. CWI 

submitted a survey they conducted that 

found 61 percent of independent 

contractors prefer the ‘‘flexibility to 

choose when and where to work’’ over 

‘‘having access to a steady income and 

benefits.’’ 199

F. Cost Savings 

This final rule is expected to result in 

cost savings to firms and workers. While 

the Department believes that there are 

multiple areas where firms and workers 

may experience cost savings, the 

Department has quantified only two: 

The cost savings from increased clarity 

and reduced litigation. The Department 

estimates that annual cost savings 

associated with this rule would be 

$495.9 million ($447.2 million in 

increased clarity + $48.7 million in 

avoided litigation costs). Other areas of 

anticipated cost savings were not 

estimated due to uncertainties or data 

limitations. The Department believe the 

rule will result in the following 

additional cost savings, which are 

discussed qualitatively: Making labor 

market more efficient; improving worker 

autonomy satisfaction; providing an 

alternate source of income for some 

workers during the pandemic; and 

facilitating independent contractors’ 

ability to work for multiple customers. 

While public comments specific to 

parts of the calculations are addressed at 

the corresponding location throughout 

this section, some commenters 

submitted general comments about the 

cost savings estimates. Several 

commenters offered supportive 

comments. The CGO said that ‘‘the 

proposed rule carefully quantifies the 

cost savings of reduced litigation and 

increased clarity.’’ The AFPF also 

expressed support but suggested that 

cost-savings may be underestimated. 

Conversely, other commenters objected 

to the estimated cost savings, including 

that it was inappropriate to quantify the 

potential cost savings from this rule but 

not quantify the costs to workers. 

Representative Pramila Jayapal asserted 

that the Department’s analysis did not 

include ‘‘any serious, fact-based 

argument as to why this rules change 

would be of benefit to the workers who 

would be most impacted by this rule 

change.’’ Other commenters offered 

equivocal comments, including one 


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200SHRM and SAP SuccessFactors. ‘‘Want Your 

Business to Thrive? Cultivate Your External Talent’’ 

(2019), https://www.shrm.org/hr-today/trends-andforecasting/research-and-surveys/pages/externalworkers.aspx. 

201While state-imposed requirements may 

influence the use of flexibilities provided by this 

rule, and could impact the number of entities and 

workers affected, the Department does not possess 

the requisite data to estimate the number of states 

that would implement measures or the magnitude 

of their impact on the universe of independent 

contractors considered in this analysis. 

202Lim et al., supra note 75, at 61. 

203The Department did not incorporate estimates 

of potential growth in independent contracting due 

to uncertainty. For example, the trend in 

independent contracting varies significantly based 

on the source. Additionally, the impact of this rule 

on the prevalence of independent contracting is 

uncertain. Lastly, state laws, such as those in 

California discussed below, may have significant 

impacts on the prevalence of independent 

contracting, which would make historical growth 

rates potentially inappropriate. 

204MBO Partners (2019), supra note 131. 

205 18.9 million independent contractors × 1.43 

contracts per year × (1¥0.25 possible reduction in 

clarity benefits) = 20.2 million. 

individual who noted that ‘‘point made 

about less litigation is a valid one,’’ but 

countered that the ‘‘cost-savings pointed 

out seem to fall only on the side of the 

business/employer.’’ 

1. Increased Clarity 

This final rule is expected to increase 

clarity concerning whether a worker is 

classified as an employee or as an 

independent contractor under the FLSA. 

This would reduce the burden faced by 

employers, potential employers, and 

workers in understanding the 

distinction and how the working 

relationship should be classified. It is 

unclear exactly how much time would 

be saved, but the Department provides 

some quantitative estimates to provide a 

sense of the magnitude. 

The importance of increased clarity is 

noted by a study coauthored and cited 

by the Society for Human Resource 

Management (SHRM) that found human 

resources professionals’ largest 

challenge concerning external workers 

that they would like to see resolved is 

the legal ambiguity regarding the use 

and management of external workers.200

Commenters from the business 

community agreed with the Department 

that the rule would improve legal 

clarity. See, e.g., U.S. Chamber of 

Commerce; CWI; WPI; ATA; NRF; 

National Restaurant Association. Groups 

that represent freelancers and 

individual freelancers who commented 

also believe this rule would improve 

legal clarity. See, e.g., CPIE; Fight for 

Freelancers. However, several 

commenters dispute the Department’s 

claim that the rule will increase clarity, 

with some focusing on specific 

industries. The TRLA stated that ‘‘the 

proposed rule unnecessarily muddies 

the waters with respect to the farm labor 

market’’ because they believe it 

contradicts ‘‘Federal courts’ 

interpretation of a Federal statute.’’ The 

State AGs also stated this rule will 

create confusion because ‘‘many 

jurisdictions have applied the economic 

reality test’’ to distinguish between 

employees and independent contractors 

for decades.201

The Department expects this rule to 

produce beneficial cost savings by 

clarifying the classification process. To 

quantify this benefit, the following 

variables need to be defined and 

estimated: (1) The number of new 

employer-worker relationships being 

assessed to determine the appropriate 

classification; (2) the amount of time 

saved per assessment; and (3) an average 

wage rate for the time spent. The 

Department estimates this will result in 

a $447.2 million in savings annually. 

The Department began with its 

estimate of the number of current 

independent contractors as the basis for 

estimating the number of new 

relationships. As discussed in section 

VI(C), according to the CWS, there are 

10.6 million workers who are 

independent contractors on their 

primary job. Adjusting this figure to 

account for independent contractors on 

their secondary job results in 18.9 

million independent contractors. 

According to Lim et al. (2019), in 2016 

the average number of 1099–MISC forms 

issued per independent contractor was 

1.43. Therefore, the Department 

assumes the average independent 

contractor has 1.43 jobs per year.202

This number does not account for the 

workers who do not file taxes, a 

recognized limitation in the cited study. 

Because it is unclear whether those who 

do not file taxes would have a higher or 

lower number of jobs per year, the 

Department does not believe that this 

limitation biases the estimate in either 

direction. Multiplying these two 

numbers results in an estimated 27.0 

million new independent contractor 

relationships each year.203

The independent contracting sector is 

characterized by churn. In their annual 

State of Independence in America 2019 

report, MBO Partners, a leading 

American staffing firm, finds that 47.8 

percent of U.S. adults reported working 

as an independent contractor at some 

point in their career; they estimate that 

figure will reach 53 percent in the next 

five years.204 This fits with the range of 

estimates for the size of the independent 

contractor universe presented in section 

VI(C). Thus, it is assumed that over the 

ten-year time horizon of this analysis, 

millions of Americans will choose 

independent contractor work either for 

the first time or return to it. This churn 

is not explicitly estimated for use in this 

analysis, but it provides a qualitative 

rationale for not attempting to taper the 

expected size of the independent 

contractor universe over time. 

A subset of new independent 

contractor relationships may have time 

savings associated with the final rule. 

Such a reduction is difficult to quantify 

because it is unclear how many 

establishments and independent 

contractors will realize benefits of 

increased clarity. It is also possible that 

the increased clarity of the classification 

process will lead to compound effects 

that generate far greater benefits over 

time. Nonetheless, because it is possible 

that only a subset of contracts would 

receive the cost savings associated with 

increased clarity, the Department has 

reduced the number of contracts in the 

estimate by 25 percent. This results in 

20.2 million contracts with cost savings 

to both the employer and the 

independent contractor.205

In her comment, Representative 

Pramila Jayapal questioned the breadth 

of the time savings benefit. She claimed 

that the only beneficiaries of this 

rulemaking would be large, repeat 

players that frequently misclassify 

workers. It is unclear what data 

Representative Jayapal relied on to come 

to this conclusion. Furthermore, 

Representative Jayapal largely ignores 

the millions of properly classified 

independent contractors that will 

benefit from added regulatory clarity. 

The Department disagrees that the cost 

savings benefits will be limited to large, 

repeat players. Other comments concur 

with the Department’s view, supported 

by data-backed arguments that the 

expect the rule to enable access to 

flexible work for caregivers responding 

to the pandemic, enable workers to 

readily supplement their income, and 

unlock the potential of the growing tech 

sector. Farren and Mitchell, of the 

Mercatus Center, assert that the rule, 

‘‘builds on existing precedent and 

serves largely as a synthesis and 

clarification of previous economic 

reality tests, rather than implementing 

any sort of radical change,’’ adding that 

independent contractors will likely 

‘‘develop more productive economic 

relationships.’’ 

Per each new contract with time 

savings, the Department has assumed 

that employers would save 20 minutes 

of time and independent contractors 


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206These time savings are based on a 33 percent 

assumed reduction in the estimated familiarization 

time per contract for both independent contractors 

(15 minutes) and employers (1 hour). 

207By applying these assumptions to the 

Department’s estimates, instead of incorporating 

anticipated growth and innovation impacts, the 

results may be an underestimate of total cost 

savings. 

208For example, the Department applied a similar 

approach to litigation costs in the 2019 final rule 

Defining and Delimiting the Exemptions for 

Executive, Administrative, Professional, Outside 

Sales and Computer Employees, 81 FR 51230 

(2019). 

209 Downloaded from Public Access to Court 

Electronic Records (PACER). 

210PACER does not provide a granular 

classification of FLSA case types to identify the 

number of cases specific to independent contractor 

disputes, so the Department performed a keyword 

analysis with spot checking of a random sample of 

500 cases closed in 2019, determining that 9.4 

percent of cases were related to independent 

contractor status (47/500 = 9.4 percent). 211The Department used data from 2014 already 

obtained for use in the analyses performed for the 

2019 overtime and regular rate final rules. See 84 

FR 51230, 51280–81 (reduced litigation estimate for 

the final rule updating the FLSA’s white collar 

exemptions at 29 CFR part 541); 84 FR 68736, 

would save 5 minutes.206 These 

numbers are small because they 

represent the marginal time savings for 

each contract, not the entire time 

necessary to identify whether an 

independent contractor relationship 

holds. 

The Washington Center commented, 

‘‘[t]here is no transparency into what 

surveys or studies were used to quantify 

the current amount of time individuals 

and businesses currently spend on 

independent contractor regulatory 

familiarization. Further, there was no 

attempt to explain with any degree of 

accuracy how this rule will change that 

time spent.’’ The Washington Center 

seems to misunderstand the analysis 

presented. The time savings variables 

are estimates of how the clarity 

provided in the rule will facilitate the 

contracting process. Estimating 

administrative time spend due to 

comply with government laws and 

regulations is a typical component of 

economic analyses and is often 

informed by consultation with subject 

matter experts. The Department 

requested data to further refine its 

estimate, but did not receive any. 

Notwithstanding, numerous 

commenters expressed support of the 

analysis the Department presented. The UFCW believes that there will be 

an increase in time to assess 

employment status because employers 

and independent contractors will now 

evaluate the classification under both 

current precedent and the definition 

laid out in this rule; ‘‘courts may decide 

to ignore the DOL’s new interpretation, 

meaning that companies and workers 

would now analyze their FLSA 

independent contractor determinations 

under current precedent and also the 

agency’s proposed non-binding new 

test.’’ The Department disagrees that 

courts will ignore the final rule. The 

RIA already includes a familiarization 

cost for the new rule, and, in the 

baseline, establishments are assumed to 

be familiar with the status quo 

environment. Accordingly, additional 

costs as stated in this comment are 

likely to be insignificant. To estimate the cost savings due to 

the increased clarity this rule provides, 

the Department applies the following 

estimates. For employers, this time is 

valued at a loaded hourly wage rate of 

$54.74. This is the mean hourly rate of 

Compensation, Benefits & Job Analysis 

Specialists (13–1141) from the OES 

multiplied by 1.63 to account for 

benefits and overhead. For independent 

contractors, this time is valued at $46.36 

per hour (mean wage rate for 

independent contractors in the CWS of 

$27.29 with the amount of benefits and 

overhead paid by employers for 

employees, then adjusted to 2019 

dollars using the GDP deflator). Using these numbers, the Department 

estimates that employers will save 

$369.0 million annually and 

independent contractors will save $78.1 

million annually due to increased 

clarity (Table 3). In sum, this is 

estimated to be a $447.1 million savings. 

The Department assumes the parameters 

used in this cost savings estimate will 

remain constant over time. This 

assumes no growth in independent 

contracting, no real wage growth, and 

no subsequent innovation in the 

employer-worker relationship. These 

assumptions facilitate simplicity of 

calculation.207 The annualized savings 

over both a 10-year horizon and in 

perpetuity, with both the 3 percent and 

7 percent discount rates is $447.1 

million. 

TABLE 3—COST SAVINGS FOR INCREASED CLARITY TO EMPLOYERS

AND INDEPENDENT CONTRACTORS

Parameter Value 

Number of new relationships (per 

year): 

Independent contractors .............. 18,858,000 

Number of jobs per contractor ..... 1.43 

New independent contractor jobs 26,966,940 

Adjustment factor ......................... 75% 

Total ......................................... 20,225,205 

Time savings per job (minutes): 

Employers .................................... 20 

Independent contractors .............. 5 

Value of time: 

Employers ................................ $54.74 

Independent contractors .......... $46.36 

Total savings: 

Employers ................................ $369,011,556 

Independent contractors .......... $78,137,248 

Total ......................................... $447,148,804 

In addition to increased clarity when 

assessing whether each relationship 

qualifies as an independent contractor 

or employment relationship, there may 

also be upfront time savings for new 

entrants who must familiarize 

themselves with the standard for being 

an employee as compared to an 

independent contractor, and who now 

have clearer guidance to aid in that 

understanding. This would apply to 

new independent contractors, new 

establishments, and current 

establishments that are considering 

hiring independent contractors for the 

first time. The Department did not 

quantify this benefit due to uncertainty 

and the difficulty of determining 

reliable variables for the number of new 

relationships that might occur due to 

the rule. However, such benefits are 

expected to be real and significant. 

2. Reduced Litigation 

The changes included in this rule are 

expected to result in decreased litigation 

due to increased clarity and reduced 

misclassification. The methodology of 

this section mirrors previous final rules 

promulgated in recent years.208 The rule 

would clarify to stakeholders how to 

distinguish between employees and 

independent contractors under the Act. 

The increased clarity is expected to 

result in fewer independent contractor 

misclassification legal disputes, and 

lower litigation costs. The Department 

estimates that $48.7 million in litigation 

costs related to independent contractor 

disputes will be avoided per year as a 

result of this rule. This may be a lowerbound estimate, reasons for which are 

described in more detail below. 

The Department estimates litigation 

cost savings as being equal to an 

estimate of the number of cases avoided 

as a result of the rule multiplied by the 

average litigation cost per case. 

Number of Cases Avoided 

According to the Public Access to 

Court Records (PACER) system, there 

were 7,238 Federal cases relating to the 

FLSA closed in 2019.209 The 

Department estimates that 9.4 percent of 

these cases relate to independent 

contractor status.210

For the NPRM, to determine this 

percentage of cases relating to 

independent contracting, the 

Department reviewed a previous 

random sample of FLSA cases closed in 

2014.211 For this final rule, the 


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68767–68 (reduced litigation estimate for the final 

rule updating the FLSA’s ‘‘regular rate’’ regulations 

at 29 CFR part 778). 

212This aligns with the methodology the 

Department has applied in a number of rulemakings 

(See e.g., Regular Rate Under the Fair Labor 

Standards Act), and in the NPRM for this rule. In 

each rulemaking with this assumption, the 

Department requested comments and data on this 

point, which yielded no substantive data or 

critiques on its merit. Therefore, the Department 

believes this is an appropriate assumption in this 

analysis. 

213Litigation costs are not tracked in a systematic 

way by any publicly available source. Individual 

case records are available through various sources 

(e.g. PACER and Westlaw), but litigation costs are 

often not reported because of undisclosed 

settlement agreements or because attorney fees are 

not included in verdict judgements. However, 

because the FLSA entitles prevailing plaintiffs to 

litigation cost awards, the Department was able to 

ascertain costs for 56 relevant cases. 

214The 56 cases used for this analysis were 

retrieved from Westlaw’s Case Evaluator database 

using a keyword search for case summaries between 

2012 and 2015 mentioning the terms ‘‘FLSA’’ and 

‘‘fees.’’ This was not limited to cases associated 

with independent contracting. Although the initial 

search yielded 64 responsive cases, the Department 

excluded one duplicate case, one case resolving 

litigation costs through a confidential settlement 

agreement, and six cases where the defendant 

employer(s) ultimately prevailed. Because the FLSA 

only entitles prevailing plaintiffs to litigation cost 

awards, information about litigation costs was only 

available for the remaining 56 FLSA cases that 

ended in settlement agreements or court verdicts 

favoring the plaintiff employees. 

215This average litigation cost per case may 

underestimate total average costs because some 

attorneys representing FLSA plaintiffs may take a 

contingency fee atop their statutorily awarded fees 

and costs. 

216Using the median litigation cost, rather than 

the mean, results in a value of $122,341 (2019 

dollars) per case, which for the estimated 68 annual 

cases produces a total annual litigation cost savings 

of $8.3 million. However, the median values do not 

adequately capture the magnitude of the impact 

resulting from the large-scale litigation cases that 

are expected to benefit from the clarity provided in 

this final rule. Therefore, the mean average is used 

for this analysis. 

217The Department’s approach to estimating 

litigation cost savings takes into account the impact 

of the rule on the number of relevant cases filed. 

The approach does not take into account the impact 

of the rule on promoting settlements in the future 

among cases that are filed. Clarifying a rule may 

increase the settlement rate among cases filed, 

reducing litigation costs further (see Gelbach, J., 

‘‘The Reduced Form of Litigation Models and the 

Plaintiff’s Win Rate,’’ J. Law & Economics 61(1), 

(2018), https://www.journals.uchicago.edu/doi/ 

10.1086/699151). 

218See Griffin Toronjo Pivateau, The Prism of 

Entrepreneurship: Creating A New Lens for Worker 

Classification, 70 Baylor L. Rev. 595, 628 (2018) 

(‘‘The continued demand for innovative work 

solutions requires a new classification test. Without 

clarification, parties will be unwilling to engage in 

new or innovative work arrangements.’’); see also R. 

Hollrah and P. Hollrah, ‘‘The Time Has Come for 

Congress to Finish Its Work on Harmonizing the 

Definition of ‘Employee,’ ’’ J. L. & Pol’y 26(2), p. 439 

(2018), https://brooklynworks.brooklaw.edu/jlp/ 

vol26/iss2/1/. 

219A. Burke, I. Zawwar, and S. Hussels. ‘‘Do 

Freelance Independent Contractors Promote 

Entrepreneurship?’’ Small Business Economics 

55(2), 415–27 (2019), https://doi.org/10.1007/ 

s11187-019-00242-w. 

220 J. Langenfeld and C. Ring. ‘‘Analysis of 

Literature on Technology and Alternative 

Workforce Arrangements.’’ Ankura (October 2020). 

221 J. Eisenach, ‘‘The Role of Independent 

Contractors in The U.S. Economy,’’ Navigant 

Continued 

Department updated its dataset, using a 

sample that included 500 cases closed 

in 2019. Of those cases, the Department 

identified 47 cases within this sample 

that related to independent contractor 

status. This ratio was applied to the 

7,238 FLSA cases closed in 2019 to 

estimate 680 cases related to 

independent contractor status. The 

Department assumes that the increased 

clarity of the rule would reduce the 

number of Federal FLSA cases involving 

independent contractor classification 

disputes by 10 percent as stakeholders 

would better understand and be better 

able to agree on classification 

determinations without having to 

litigate.212 Multiplying these variables 

results in an estimated 68 cases related 

to independent contractor disputes 

avoided annually. This estimate of the 

reduction in the number of independent 

contractor disputes filed does not take 

into account any reduction in the 

number of FLSA cases related to 

independent contractor disputes heard 

in state courts (e.g., where the state has 

adopted the FLSA standards for 

classifying workers), nor does it take 

into account any reduction in filings 

resolved before litigation or by 

alternative dispute resolution, neither of 

which are captured in PACER data. 

Average Litigation Cost per Case 

The Department applied a previous 

estimate of litigation costs of $654,182 

per case. To obtain this estimate, the 

Department conducted a search for 

FLSA cases concluded between 2012 

and 2015 in the Westlaw Case Evaluator 

tool and on PACER and identified 56 

cases that contained sufficient litigation 

cost information to estimate the average 

costs of litigation.213 214 The Department 

looked at records of court filings in the 

Westlaw Case Evaluator tool and on 

PACER to ascertain how much plaintiffs 

in these cases were paid for attorney 

fees, administrative fees, and/or other 

costs, apart from any monetary damages 

attributable to the alleged FLSA 

violations. After determining the 

plaintiff’s total litigation costs for each 

case, the Department then doubled the 

figures to account for litigation costs 

that the defendant employers incurred. 

According to this analysis, the average 

litigation cost for FLSA cases concluded 

between 2012 and 2015 was $654,182. 

Adjusting for inflation, using the GDP 

deflator, results in a value of $715,637 

in 2019 dollars.215

Applying these figures to the 

estimated 68 cases that could be 

prevented each year due to this 

rulemaking, the Department estimates 

that avoided litigation costs resulting 

from the rule total $48.7 million per 

year (2019 dollars).216 217

3. Improved Labor Market Conditions 

The Department anticipates the final 

rule will produce benefits by reducing 

uncertainty and improving labor market 

conditions. Removing uncertainty 

improves labor market efficiency by 

reducing deadweight loss. As discussed 

in the need for rulemaking, the 

Department believes emerging and 

innovative economic arrangements that 

benefit both workers and business 

require reasonable certainty regarding 

the worker’s classification as an 

independent contractor. The current 

legal uncertainty may deter businesses 

from offering these arrangements or 

developing them in the first place.218 If 

so, the result would be economic 

deadweight loss: Legal uncertainty 

prevents mutually beneficial 

independent contractor arrangements. 

This final rule may produce cost savings 

by reducing deadweight loss. 

Nonetheless, due to the abundance of 

variables at play, the Department has 

not attempted to quantify the precise 

amount of that reduction. 

The CGO concurred in its public 

comment, emphasizing that an 

important benefit of this rule will likely 

be increased labor market flexibility. 

They note that ‘‘most labor models 

suggest flexibility is crucial in allowing 

labor markets to efficiently match 

workers with jobs, spur 

entrepreneurship, and act as an 

important source of countercyclical 

income during a recession.’’ They cite a 

study showing that a 10 percent 

increase in the freelance workforce is 

correlated with a 1 percent increase in 

entrepreneurial activity.219 Similarly, 

CWI submitted their report that finds 

independent workers ‘‘can be an 

important part of improving business 

performance, such as by increasing 

speed to market, increasing 

organizational agility, improving overall 

financial performance, and allowing 

firms to compete in a digital world 

where increasingly relevant, highlyskilled talent is in short-supply.’’ 220 By 

decreasing uncertainty and thus 

potentially opening new opportunities 

for firms, this final rule may encourage 

companies to hire independent 

contractors whom they otherwise would 

not have hired. Eisenach (2010) outlines 

the potential costs of curtailing 

independent contracting.221 If 


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Economics (2010), https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=1717932. 

222L. Katz and A. Krueger, ‘‘The Role of 

Unemployment in the Rise in Alternative Work 

Arrangements,’’ American Economic Review, 

107(5), p. 388 (2017), https://www.aeaweb.org/ 

articles?id=10.1257/aer.p20171092. 

223 It should be noted that government-mandated 

coverage is not free. The total value that a worker 

provides a business must be at least as large as the 

wage, any provided benefits, and government (state 

or Federal) mandates combined. Congress and/or 

state governments may conclude that the value of 

mandating certain coverages outweighs the costs of 

such coverage, but that does not necessarily mean 

that all covered workers receive significant benefits 

from such coverage or value such coverage 

compared to other compensation. In fact, in some 

cases workers may be able to strike a better deal 

with a business than would be provided under the 

terms of an employee relationship that operates 

under the associated mandates. Such as in a 

situation where a worker has clusters of available 

time to work punctuated by extended periods of 

inability to work, such as a long-haul shipper who 

spends a month at sea and then a month at home 

or a divorced parent who has five kids to care for 

every other week but is fully available on the off 

weeks to work as many hours as needed. In these 

cases, independent contractor relationships may be 

pivotal in mutually benefiting workers and business 

owners. 

224See, e.g., MBO Partners (2019), supra note 131. 225The Department used PES26IC to identify 

preferred work arrangement and PES26IR to 

identify the reason they work as an independent 

contractor. 226The third most commonly selected reason was 

‘‘Money is better,’’ supporting the Department’s 

view that monetary and non-pecuniary benefits are 

central motivations of most independent 

contractors. 227McKinsey Global Institute, supra note 89 at 

11. A 2009 Pew survey similarly found that selfemployed workers are ‘‘significantly more satisfied 

with their jobs than other workers.’’ Rich Morin, 

‘‘Job Satisfaction among the Self-Employed,’’ Pew 

Research Center, (September 2009), http://

pewsocialtrends.org/pubs/743/job-satisfactionhighest-among-self-employed. In particular, 39 

percent of self-employed workers reported being 

‘‘completely satisfied’’ with their jobs, compared 

with 28 percent of employees. Id. 

independent contracting is expanded 

due to this rule, this could generate 

benefits that may include: 

• Increased job creation and small 

business formation. 

• Increased competition and 

decreased prices. 

• A more flexible and dynamic work 

force, where workers are able to more 

easily move to locations or to employers 

where their labor and skills are needed. 

Eisenach explains several channels 

through which these efficiency gains 

may be achieved. First, by avoiding 

some fixed employment costs, it is 

easier for firms to adjust their labor 

needs based on fluctuations in demand. 

Second, by using pay-for-preference, 

independent contractors are 

incentivized to increase production and 

quality. Third, ‘‘contracting can be an 

important mechanism for overcoming 

legal and regulatory barriers to 

economically efficient employment 

arrangements.’’ The analysis of these 

benefits assumes that businesses, 

especially in other industries, would 

like to increase their use of independent 

contractors, but have refrained from 

doing so because of uncertainty 

regarding who can appropriately be 

engaged as an independent contractor 

under the FLSA. Conversely, significant 

use of independent contractors may not 

be suitable for all industries, thus 

limiting the growth in its utilization. 

Some commenters agreed that 

expanding independent contracting can 

lead to employment gains. For example, 

Dr. Palagashvili discussed the literature 

showing how restricting independent 

contracting can lead to loss of jobs. This 

final rule, by expanding independent 

contracting, could conversely increase 

employment. She also noted the 

importance of independent contracting 

for unemployed workers, referencing a 

paper that found workers who ‘‘suffered 

a spell of unemployment are 7 to 17 

percentage points more likely than 

observationally similar workers to be 

employed in an alternative work 

arrangement when surveyed 1 to 2.5 

years later.’’ 222 223

She also emphasized the importance 

of independent contracting to startup 

firms. She references her work 

conducting interviews and a survey of 

technology startup executives. During 

these interviews they found that ‘‘71 

percent of startups relied on 

independent contractors and thought it 

was necessary to use contract labor 

during their early stages.’’ Independent 

contractors are important to startups 

because ‘‘during unpredictable times, 

when startups are trying to find their 

market and build their product, they 

need flexible labor and need to be able 

to hire and fire easily.’’ 

Several commenters disagreed that 

the rule would improve outcomes in the 

labor market. FTC Commissioner 

Rebecca Kelly Slaughter commented 

that it is inappropriate to conclude ‘‘that 

‘competition will increase and prices 

will decrease’ when more workers are 

classified as independent contractors’’ 

because, according to the commenter, 

the only support offered in the NPRM 

was a 2010 non-peer-reviewed article 

providing little evidence of this claim. 

The Department maintains that 

economic laws generally apply to labor 

markets, and that as supply increases 

then prices can be expected to decrease. 

UFCW contested the Department’s claim 

that this rule will lead to increased 

productivity. They presented an 

example of how independent 

contracting hurts efficiency: ‘‘Instead of 

ecommerce fulfil[l]ment carried out by a 

team of output-optimizing role players, 

the ‘independent contractor’ item 

selection and packing is carried out by 

the same individual who does the 

delivery, adding unnecessary and time 

consuming steps to the process. The 

‘independent contractor’ must first park 

his or her car, walk into the store, orient 

him or herself to the store layout, select 

and pack the items, transact the 

payment, then carry the packed items 

back to the car.’’ The Department does 

not think UFCW’s claims are valid 

across the incredibly dynamic range of 

independent contractor jobs, and further 

questions UFCW’s unsupported 

assertion that the expansive emergence 

of mobile customer-service-focused 

delivery applications ‘‘reduces the 

opportunity for productivity-enhancing 

innovation.’’ Further, even the example 

ignores that efficiencies will likely be 

gained over time as the independent 

contractor fulfils additional orders each 

day, week, and month. The Department 

does not believe that these commenters 

provided reliable data to revise its 

analysis, especially in light of the data 

provided to its support by other 

commenters. 

4. Improved Worker Satisfaction and 

Flexibility 

The Department believes this 

rulemaking may also result in greater 

autonomy and job satisfaction for 

workers. Several surveys have shown 

that independent contractors have high 

job satisfaction.224 Using the CWS, 

which only considers primary, active 

contractors, the Department estimates 

that of independent contractors with 

valid responses, 83 percent prefer their 

current arrangement rather than being 

an employee, compared with only 9 

percent who would prefer an 

employment arrangement (the 

remaining 8 percent responded that it 

depends). 

Additionally, the main reasons 

individuals work as independent 

contractors demonstrate that being an 

independent contractor often has 

valuable benefits. The 2017 CWS asked, 

‘‘What is the main reason you are selfemployed/an independent contractor?’’ 

The two most popular reasons were (1) 

being their own boss, and (2) scheduling 

flexibility.225 In fact, these two choices 

were each selected over three times 

more often than any of the other 

options.226 Additionally, McKinsey 

Global Institute found that 

‘‘[i]ndependent workers report higher 

levels of satisfaction on many aspects of 

their work life than traditional 

workers.’’ 227 The McKinsey Global 

Institute examined workers who work 


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228McKinsey Global Institute, supra note 89 at 

10. The McKinsey survey found that, while ‘‘those 

working independently out of necessity report 

being happier with the flexibility and content of the 

work,’’ they also report being ‘‘less satisfied with 

their level of income level and their income 

security.’’ Id. The Department believes this 

rulemaking is unlikely to negatively impact the 

average income level of such workers by 

encouraging independent contractor opportunities. 

As discussed above, there are data indicating that 

independent contractors, on average, may earn 

higher hourly wages than employees. Nor is 

rulemaking likely to negatively impact workers’ 

income security, on average (see Section 

VI(E)(2)(viii)). 

229 Kelly Services (2015), supra note 89. 

230Upwork, Freelance Forward 2020: The U.S. 

Independent Workforce Report (September 2020). 

231HyperWallet. ‘‘The Future of Gig Work Is 

Female: A Study on the Behaviors and Career 

Aspirations of Women in the Gig Economy,’’ (2017), 

https://www.hyperwallet.com/app/uploads/HW_

The_Future_of_Gig_Work_is_Female.pdf. 

232SHRM and SAP SuccessFactors (2019), supra 

note 200. 

233He, H. et al. (2019), supra note 131. 

234Coalition for Workforce Innovation (2020), 

supra note. 

235Prudential Research (2017), supra note. 

236Coalition for Workforce Innovation (2020), 

supra note. 

237 D. Farrell, F. Greig, and A. Hamoudi, ‘‘The 

Online Platform Economy in 27 Metro Areas: 

Continued 

independently by choice and those who 

do so by necessity (such as needing 

supplemental income) and found that 

both groups report being happy with the 

flexibility and autonomy of their 

work.228 Similarly, Kelly Services found 

that ‘‘free agents’’—i.e., workers who 

‘‘derive their primary income from 

independent work and actively prefer 

it’’—report higher satisfaction than 

traditional workers concerning overall 

employment situation; work-life 

balance; opportunities to expand skills; 

and opportunities to advance career.229

Many commenters agreed that the 

scheduling flexibility afforded to 

independent contractors is of 

importance to many of these workers. 

WPI pointed out that many independent 

contractors require flexibility to balance 

work and other obligations. They cite a 

recent report that found ‘‘48 percent of 

freelancers report being caregivers, 

while 33 percent report having a 

disability in their household.’’ 230 Dr. 

Palagashvili discussed the significance 

of independent contracting work for 

women, who tend to be the primary 

caregiver, and thus value scheduling 

flexibility. She cited several papers 

demonstrating the importance of 

flexible work arrangements for women. 

For example, a survey by HyperWallet 

found that ‘‘96 percent of women 

indicate that the primary benefit of 

engaging in platform-economy work is 

the flexible working hours.231 SHRM 

pointed to their survey that found that 

49 percent of external workers chose 

that work arrangement for the ability to 

set their own hours.232

Conversely, other commenters 

asserted that valuing flexibility is not 

relevant as a benefit to a worker who is 

classified as an independent contractor. 

The Department believes that nonpecuniary benefits like flexibility are 

very important to workers and should 

receive adequate attention in this RIA. 

Research has shown that flexibility is a 

criterion workers consider when 

evaluating job offers.233

The PA L&I wrote that it is 

inappropriate to present flexibility for 

independent contractors as a 

‘‘replacement for lower wages and no 

benefits.’’ PA L&I also stated that the 

Department does not discuss 

independent contractors’ counteracting 

loss of stability in income, location of 

work, and frequency and schedule of 

work and instead simply ‘‘presumes that 

workers prize flexibility over stability’’ 

without citing any evidence. The 

Department notes that it examined 

numerous studies that directly address, 

and provide evidence regarding, the 

tradeoffs many independent contractors 

voluntarily make to attain flexibility. To 

that point, a survey submitted by CWI 

found 61 percent of independent 

contractors prefer the ‘‘flexibility to 

choose when and where to work’’ over 

‘‘having access to a steady income and 

benefits.’’ 234 Additionally, the workers 

who value flexibility will be the ones 

drawn to those independent contracting 

arrangements that provide flexibility. 

The Washington Center posited that 

in many industries, such as trucking 

and deliveries, the flexibility benefits 

for independent contractors are small 

because workers often do not have 

control over their routes or work hours. 

This was echoed by the UFCW, who 

pointed out that in retail the use of justin-time scheduling limits the scheduling 

flexibility for workers classified as 

independent contractors. The 

Department acknowledges that the 

flexibility benefits may differ across 

industries, but that they tend to exist in 

all industries to some degree. 

UFCW contended that although 

current independent contractors may be 

satisfied with their employment status, 

this will not necessarily hold for newly 

classified workers. The Department 

acknowledges that new independent 

contractors may differ from current 

independent contractors but lacks any 

data to show how their satisfaction 

levels would differ. Lacking such data, 

which commenters did not provide, the 

best predictor of job satisfaction for new 

independent contractors is job 

satisfaction among current independent 

contractors. Further, the Department 

notes, as explained above, that this rule 

will not directly reclassify any workers 

but rather provides clarity regarding the 

current process for determining worker 

classification. 

UFCW used a 2017 report from 

Prudential Research, specifically 

regarding gig workers, to dispute the 

Department’s claim that independent 

contractors are more satisfied than 

employees. UFCW excerpted from the 

report that, ‘‘on-demand independent 

contractors who work full-time hours 

are less satisfied with their current work 

situation than full-time employees (44 

percent vs. 55 percent).’’ 235 However, 

the commenter did not include all of the 

findings in the source it cited; the same 

Prudential study notes that for gig 

workers who also have other jobs, their 

job satisfaction rate is 86 percent. 

Notably, UFCW focused on gig workers 

in its comment, but conflates such 

workers with the entire universe of 

independent contractors. The 

Department acknowledges that although 

there may be lower job satisfaction for 

some subsets of independent 

contractors, studies that consider all 

independent contractors generally find 

that independent contractors report 

similar or higher job satisfaction than 

employees. For example, CWI submitted 

a survey they conducted finding that 94 

percent of independent workers are 

satisfied with their work 

arrangements.236

By clarifying that control and 

opportunity for profit or loss are the 

core economic reality factors, this final 

rule is likely to encourage the creation 

of independent contractor jobs that 

provide autonomy and entrepreneurial 

opportunities that many workers find 

satisfying. For the same reason, this 

final rule likely will diminish the 

incidence of independent contractor 

jobs that lack these widely desired 

characteristics. Thus, the Department 

expects this final rule to result in more 

independent contractor opportunities 

which bring with them autonomy and 

job satisfaction. The benefits of worker 

autonomy and satisfaction obviously 

‘‘are difficult or impossible to quantify,’’ 

but they nonetheless merit 

consideration. 

5. Income Smoothing 

Several commenters asserted that 

independent contracting plays a key 

role in smoothing income during 

recessions by providing an alternative 

source of income. Commenters cited to 

a JPMorgan Chase Institute study that 

makes this case.237 Other commenters 


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1238 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

JPMorgan Chase Institute,’’ JPMorgan Chase 

Institute (2019), https://www.jpmorganchase.com/ 

institute/research/labor-markets/report-opecities.htm. 238Collins et al. (2019), supra note 80. 239 Id. at 14 n.7. 

240See, e.g., Halferty, 821 F.2d at 268 (‘‘[I]t is not 

dependence in the sense that one could not survive 

without the income from the job that we examine, 

but dependence for continued employment’’); 

DialAmerica, 757 F.2d at 1385 (‘‘The economicdependence aspect of the [economic reality] test 

does not concern whether the workers at issue 

depend on the money they earn for obtaining the 

necessities of life.’’). 

241Commissioner Slaughter cited a note 

submitted as background material for an OECD 

meeting and a law review article to support this 

contention. See M. Steinbaum, Monopsony and the 

Business Model of Gig Economy Platforms, OECD 

7 (Sept. 17, 2020), https://one.oecd.org/document/ 

DAF/COMP/WD(2019)66/en/pdf; M. Steinbaum, 

‘‘Antitrust, the Gig Economy, and Labor Market 

Power,’’ 82 Law and Contemp. Probs. 45, 55 (2019), 

https://scholarship.law.duke.edu/cgi/ 

viewcontent.cgi?article=4918&context=lcp. 

242See This App Lets Drivers Juggle Competing 

Uber and Lyft Rides, Wired (Feb. 15, 2018) 

(estimating that over 70 percent of rideshare drivers 

multi-app), https://www.wired.com/story/this-applets-drivers-juggle-competing-uber-and-lyft-rides/. 

243Lim et al., supra note 75, at 61. 

244See the May 2017 CWS supplement to the 

CPS. 

245Exec. Order No. 12866 § 6(a)(3)(C)(iii), 58 FR 

51741. 

246See 85 FR 60634 (discussing regulatory 

alternative to the proposed rule). 

247OMB guidance advises that, where possible, 

agencies should analyze at least one ‘‘more 

stringent option’’ and one ‘‘less stringent option’’ to 

the proposed approach. OMB Circular A–4 at 16. 

248See 26 U.S.C. 3121(d)(2) (generally defining 

the term ‘‘employee’’ under the Internal Revenue 

Code as ‘‘any individual who, under the usual 

common law rules applicable in determining the 

employer-employee relationship, has the status of 

an employee’’); 42 U.S.C. 410(j) (similarly defining 

‘‘employee’’ under the Social Security Act); see 

also, e.g., Community for Creative Non-Violence v. 

Reid, 490 U.S. 730, 751 (1989) (applying 

‘‘principles of general common law of agency’’ to 

determine ‘‘whether . . . work was prepared by an 

employee or an independent contractor’’ under the 

Copyright Act of 1976); Darden, 503 U.S. 318 

(holding that ‘‘a common-law test’’ should resolve 

employee/independent contractor disputes under 

ERISA). 

249See also Hargrove v. Sleepy’s, LLC, 106 A.3d 

449, 465 (N.J. 2015) (extending the ABC test to state 

wage claims in New Jersey). 

250The Modern Worker Empowerment Act, H.R. 

4069, 116th Cong. (2019) (introduced by Rep. Elise 

Stefanik), would amend Sec. 3(e) of the FLSA 

statute to clarify that the term ‘‘employee’’ is 

‘‘determined under the usual common law rules (as 

applied for purposes of section 3121(d) of the 

Internal Revenue Code of 1986).’’ See also S. 2973, 

116th Cong. (2019) (companion Senate bill 

introduced by Sen. Tim Scott). By contrast, the 

Worker Flexibility and Small Business Protection 

Act, H.R. 8375, 116th Cong. (2020) (introduced by 

Rep. Rosa DeLauro) would, among other provisions, 

amend the FLSA and other labor statutes to clarify 

that ‘‘[a]n individual performing any labor for 

remuneration shall be considered an employee and 

not an independent contractor’’ unless such 

individual passes the ‘‘ABC’’ test discussed in this 

analysis. See also S. 4738, 116th Cong. (2020) 

(companion bill introduced by Senators Patty 

Murray and Sherrod Brown). 

251OMB Circular A–4 advises that agencies 

‘‘should discuss the statutory requirements that 

affect the selection of regulatory approach. If legal 

held the opposite view and highlighted 

the economic downturn related to 

COVID–19. For example, the Center for 

Innovation in Worker Organization 

claimed that high unemployment 

increases the likelihood that employers 

fail to pay minimum wage. Because this 

rule is focused on independent 

contractors, even assuming the premise 

of the comment from the Center for 

Innovation in Worker Organization is 

correct, this concern does not directly 

apply. Further, this commenter did not 

provide clear evidence that independent 

contracting does not help workers 

supplement their income. 

6. Opportunities To Work for Multiple 

Customers 

In the NPRM, the Department noted 

that independent contractors may more 

easily work for multiple companies 

simultaneously. The Washington Center 

disputed this claim, asserting that 

‘‘economists have found that about 75 

percent of workers receiving nonemployee compensation are tied to one 

employer’’ and the likelihood of being 

tied to a single employer is similar for 

wage earners and contractors.238 But the 

economists whom the Washington 

Center cites in support of their assertion 

explicitly noted that the independent 

contractors in their study ‘‘include[ ] 

those who are primarily employed at a 

W2 job, and vice versa.’’ 239 This overlap 

prevents meaningful comparisons 

between independent contractors and 

W2 employees for the purpose of this 

RIA. Rebecca Kelly Slaughter, a 

Commissioner at the FTC wrote: 

‘‘Independent contractor status is not 

what allows a worker to work for two 

rivals. Indeed, many hourly workers are 

employed at more than one job, 

including for two employers who are 

rivals in the same industry.’’ 

Commissioner Slaughter gave an 

example of a worker who holds two jobs 

at competing fast food restaurants, but 

this does not undermine the 

Department’s discussion of independent 

contractors being able to use mobile 

applications to pick which tasks they 

choose to perform in real time on a jobby-job basis. That fast food worker 

cannot always decide which job he 

wants to work for each shift of the day. 

Additionally, Slaughter commented that 

working for multiple employers may 

demonstrate a worker’s need to hold 

multiple jobs to pay bills rather than 

being indicative of flexibility. This 

point, however, was not substantiated 

by data showing that such a critique can 

effectively be applied across the 

universe of millions of independent 

contractors who cite flexibility as a core 

motivator. And as explained in Sections 

III(A) and IV(C), courts have repeatedly 

explained that need for income is not 

the correct legal lens through which to 

analyze whether a worker is an 

independent contractor or employee 

under the FLSA.240 Lastly, she noted 

that ‘‘Uber has been known to 

discourage multi-apping by monitoring 

whether drivers were logging into more 

than one platform simultaneously and 

penalizing those that did not 

exclusively take Uber customers.’’ 241

Under this rule, Uber’s monitoring and 

controlling certain drivers’ ability to 

multi-app would be a consideration 

under the control factors of the 

economic reality test as applied to those 

drivers. See Razak, 951 F.3d at 145–46 

(including drivers’ contention ‘‘that 

while ‘online’ for Uber, they cannot also 

accept rides through other platforms’’ in 

list of ‘‘disputed facts regarding 

control’’). But it appears that the 

majority of rideshare drivers are able to 

multi-app.242 The Department believes 

that economy-wide data reveal that 

many independent contractors hold 

multiple jobs,243 and they resoundingly 

prize the flexibility to work when, 

where, and how they choose.244

G. Regulatory Alternatives 

Pursuant to its obligations under 

Executive Order 12866,245 the 

Department assessed three regulatory 

alternatives to the standard promulgated 

in this final rule. These three 

alternatives are the same as those 

analyzed in the NPRM,246 listed below 

in order from least to most restrictive of 

independent contracting: 247

(1) Codification of the common law 

control test, which applies in 

distinguishing between employees and 

independent contractors under various 

other Federal laws; 248

(2) Codification of the traditional sixfactor ‘‘economic reality’’ balancing test, 

as recently articulated in WHD Opinion 

Letter FLSA2019–6; and 

(3) Codification of the ‘‘ABC’’ test, as 

adopted by the California Supreme 

Court in Dynamex Operations W., Inc. v. 

Superior Court, 416 P.3d 1 (Cal. 

2018).249

Although the Department believes that 

legal limitations preclude adoption of 

the ‘‘common law’’ and ‘‘ABC’’ test 

alternatives listed above, the 

Department notes that Congress is 

presently considering separate bills that 

would amend the FLSA to adopt these 

alternatives,250 and accordingly presents 

them for the benefit of the public as 

recommended by OMB guidance.251 All 


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constraints prevent the selection of a regulatory 

action that best satisfies the philosophy and 

principles of Executive Order 12866, [agencies] 

should identify these constraints and estimate their 

opportunity cost. Such information may be useful 

to Congress under the Regulatory Right-to-Know 

Act.’’ 

252See supra note 248. The Supreme Court has 

explained that the common law standard of 

employment applies by default under Federal law 

‘‘unless [Congress] clearly indicates otherwise.’’ 

Darden, 503 U.S. at 325; see also Community for 

Creative Non-Violence v. Reid, 490 US 730, 739–40 

(1989) (‘‘[W]hen Congress has used the term 

‘employee’ without defining it, we have concluded 

that Congress intended to describe the conventional 

master-servant relationship as understood by 

common-law agency doctrine.’’). 

three regulatory alternatives are 

analyzed in qualitative terms, due to 

data constraints and inherent 

uncertainty in measuring the exact 

stringency of multi-factor legal tests and 

likely responses from the regulated 

community. The Department 

appreciates the feedback it received on 

these regulatory alternatives from 

commenters, which is described and 

addressed below. 

1. Codifying a Common Law Control 

Test 

The least stringent alternative to the 

final rule’s streamlined ‘‘economic 

reality’’ test would be to adopt a 

common law control test, as is generally 

used to determine independent 

contractor classification questions 

arising under the Internal Revenue Code 

and various other Federal laws.252 The 

overarching focus of the common law 

control test is ‘‘the hiring party’s right 

to control the manner and means by 

which [work] is accomplished,’’ Reid, 

490 U.S. at 751, but the Supreme Court 

has explained that ‘‘other factors 

relevant to the inquiry [include] the 

skill required; the source of the 

instrumentalities and tools; the location 

of the work; the duration of the parties’ 

relationship; whether the hiring party 

has the right to assign additional 

projects to the hired party; the extent of 

the hired party’s discretion over when 

and how long to work; the method of 

payment; the hired party’s role in hiring 

and paying assistants; whether the work 

is part of the regular business of the 

hiring party; whether the hiring party is 

in business; the provision of employee 

benefits; and the tax treatment of the 

hired party.’’ Id. at 751–52. 

Although the common law control 

test considers many of the same factors 

as those identified in the final rule’s 

‘‘economic reality’’ test (e.g., skill, 

length of the working relationship, the 

source of equipment and materials, etc.), 

courts generally recognize that, because 

of its focus on control, the common law 

test is more permissive of independent 

contracting arrangements than the 

economic reality test, which more 

broadly examines the economic 

dependence of the worker. See, e.g., 

Diggs v. Harris Hospital-Methodist, Inc., 

847 F.2d 270, 272 n.1 (5th Cir. 1988) 

(observing that ‘‘[t]he ‘economic 

realities’ test is a more expansive 

standard for determining employee 

status’’ than the common law control 

test). Thus, if a common law control test 

determined independent contractor 

status under the FLSA, it is possible that 

some workers presently classified as 

FLSA employees could be reclassified 

as independent contractors, increasing 

the overall number of independent 

contractors and reducing the overall 

number of employees. The Department 

is unable to estimate the exact 

magnitude of such a reclassification 

effect, but believes that the vast majority 

of FLSA employees would remain FLSA 

employees even under a common law 

control test. 

As discussed in the NPRM, codifying 

a common law control test that is used 

for purposes of at least some other 

Federal statutes would create a simpler 

legal regime for regulated entities 

interested in receiving services from an 

independent contractor, thereby 

reducing confusion, compliance costs, 

and legal risk for entities interested in 

doing business with independent 

contractors. Entities would not have to 

understand and apply a different 

employment classification standard for 

FLSA purposes. Thus, adopting the 

common law control test would likely 

increase perpetual cost savings for 

regulated entities attributable to 

improved clarity and reduced litigation 

as compared to the final rule. It could, 

on the other hand, impose burdens on 

workers who might prefer to be 

employees subject to FLSA protections. 

Moreover, the Supreme Court has 

interpreted the ‘‘suffer or permit’’ 

language in section 3(g) of the FLSA as 

establishing a broader definition of 

employment than the common law. See, 

e.g., Darden, 503 U.S. at 326; Portland 

Terminal Co., 330 at 150–51. 

A handful of business commenters 

addressed the merits of the common law 

control test as a regulatory alternative. 

In a joint comment, Vanliner Insurance 

Company and the Great American 

Trucking Division implicitly requested 

adoption of the common law standard 

presently used under the National Labor 

Relations Act (NLRA) and the Social 

Security Act (SSA), as they urged the 

Department to ‘‘foster efficiency and 

consistency by creating uniformity for 

compliance with the FLSA, the [NLRA], 

and the [SSA].’’ The American Society 

of Travel Advisors, Inc. (ASTA) asserted 

that ‘‘the simplest means to accomplish 

[a uniform classification standard under 

Federal law] would be to revise the 

FLSA, either legislatively or through 

regulation, to replace the economic 

reality test with the right of control 

test.’’ While appearing to support the 

common law control test on substance, 

the Workplace Policy Institute warned 

that ‘‘any attempt by the Department to 

depart from the economic reality test 

likely would result in a successful legal 

challenge to this rulemaking,’’ 

expressing support for the Department’s 

proposed economic reality test ‘‘in the 

spirit of ‘don’t let the perfect be the 

enemy of the good.’ ’’ See also Dr. 

Palagashvili (‘‘[A]lthough the DOL is 

constrained in adopting a common law 

control test, I suggest that lawmakers 

amend the FLSA to allow for 

codification thereof.’’). By contrast, the 

National Federation of Independent 

Business (NFIB) criticized the 

Department’s conclusion in the NPRM 

that it lacks the legal authority to 

implement a common law standard 

through rulemaking as ‘‘unfortunate’’ 

and ‘‘questionable.’’ 

The Department appreciates the 

policy appeal of establishing a uniform 

Federal classification standard, and 

understands that the standard most 

familiar to the regulated community is 

likely the common law control test used 

for tax and other purposes. However, 

such an approach would be inconsistent 

with the Supreme Court’s statement that 

FLSA employment is more inclusive 

than the common law control test. See, 

e.g., Walling v. Portland Terminal Co., 

330 U.S. 148, 150 (1947) (‘‘[I]n 

determining who are ‘employees under 

the [FLSA], common law employee 

categories . . . are not of controlling 

significance.’’). The overwhelming 

majority of commenters who mentioned 

the common law standard in their 

comment, including business 

commenters inclined to favor the 

relative permissiveness of a common 

law standard, expressed agreement with 

that conclusion. 

2. Codifying the Six-Factor ‘‘Economic 

Reality’’ Balancing Test 

As discussed earlier in section II(B), 

WHD has long applied a multifactor 

‘‘economic reality’’ balancing test to 

distinguish between employees and 

independent contractors in enforcement 

actions and subregulatory guidance. The 

six factors in WHD’s multifactor 

balancing test, as recently articulated in 

WHD Opinion Letter FLSA2019–6, are 

as follows: 

(1) The nature and degree of the 

potential employer’s control; 


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253The Department is also concerned that the 

phrase ‘‘similar footing’’ lacks a clear meaning and 

therefore may be confusing to the regulated 

community. 

(2) The permanency of the worker’s 

relationship with the potential 

employer; 

(3) The amount of the worker’s 

investment in facilities, equipment, or 

helpers; 

(4) The amount of skill, initiative, 

judgment, or foresight required for the 

worker’s services; 

(5) The worker’s opportunities for 

profit or loss; and 

(6) The extent of integration of the 

worker’s services into the potential 

employer’s business. 

WHD Opinion Letter FLSA2019–6 at 4 

(citing Rutherford Food, 331 U.S. at 730, 

and Silk, 331 U.S. at 716). 

As discussed in the NPRM, the 

Department believes that this six-factor 

balancing test is neither more nor less 

permissive of independent contractor 

relationships as compared to the 

streamlined test finalized in this 

rulemaking. Both tests describe the 

‘‘economic dependence’’ of the worker 

at issue as the ultimate inquiry; both 

emphasize the primacy of actual 

practice over contractual or theoretical 

possibilities (i.e., the ‘‘economic reality’’ 

of the work arrangement); and both 

evaluate the same set of underlying 

factors, notwithstanding an emphasis 

and consolidation of certain factors 

under this rule’s streamlined test. 

Notably, like § 795.105(d)(1)(i) of the 

final rule, WHD Opinion Letter 

FLSA2019–6 advised that certain safety 

measures and quality control standards 

do not constitute ‘‘control’’ indicative of 

an FLSA employment relationship. See 

id. at 8 n.4. However, the Department 

explained in the NPRM that the sixfactor balancing test used by WHD and 

most courts, with some significant 

variations, would benefit from 

clarification, sharpening, and 

streamlining. 

A number of commenters urged the 

Department to codify a six-factor 

balancing test. Several commenters, 

including NELP, Eastern Atlantic States 

Regional Council of Carpenters 

(EASRCC), and the United Brotherhood 

of Carpenters, specifically requested 

that the Department reinstate AI 2015– 

1, which was withdrawn in 2017. 

SWACCA asserted that ‘‘codification of 

the six-factor balancing test may well 

achieve more consistency of application 

from the courts as it pushes them to 

develop their similar precedents to align 

with the Department’s views,’’ 

criticizing the proposed rule as ‘‘a novel 

weighted test that will result in more 

litigation and less certain outcomes[.]’’ 

SWACCA also disputed the 

Department’s assumption in the NPRM 

that codifying the six-factor balancing 

test would not reduce initial regulatory 

familiarization costs or provide greater 

per-contract cost savings compared to 

the proposed rule, see 85 FR 60635, 

arguing that this assumption ‘‘overlooks 

the fact that codifying the six-factor 

balancing test would simply incorporate 

what is now subregulatory guidance at 

the regulatory level.’’ Finally, NELP, 

NWLC, and the State AGs asserted that 

the Department has no legal authority to 

promulgate any regulatory standard 

except the traditional six-factor 

balancing test, citing to Kimble v. 

Marvel Entm’t, LLC, 576 U.S. 446 (2015), 

for the proposition that the six-factor 

balancing test derived from Silk and 

Rutherford Food has effectively become 

part of the FLSA’s ‘‘statutory scheme.’’ 

See id. at 456 (‘‘All [of the Supreme 

Court’s] interpretive decisions, in 

whatever way reasoned, effectively 

become part of the statutory scheme, 

subject (just like the rest) to 

congressional change.’’). 

While the Department agrees with 

NELP, NWLC, and the State AGs that 

Supreme Court precedent requires 

application of an ‘‘economic reality’’ 

test to evaluate independent contractor 

claims under the FLSA, we disagree that 

the Court has definitively prescribed the 

specific components of such a test. As 

explained earlier, courts in different 

Federal circuits have articulated the 

number and nature of relevant factors in 

different ways, so any formulation 

endorsed by the Department would be at 

least marginally ‘‘novel’’ to courts and 

affected stakeholders across 

jurisdictions in some respect. Moreover, 

many commenters are overstating the 

degree to which the standard finalized 

in this rule meaningfully departs from 

existing precedent. If anything, by 

elevating the two factors that are most 

probative to what courts have 

established as the ultimate inquiry of 

the test—i.e., whether workers ‘‘are in 

business for themselves,’’ Saleem, 854 

F.3d at 139—the Department’s approach 

is more faithful to courts’ instruction 

that the factors ‘‘must be applied with 

that ultimate notion in mind.’’ Usery, 

527 F.2d at 1311. Moreover, because the 

Department’s analysis of appellate case 

law since 1975 has found workers’ 

control and opportunity for profit or 

loss to be most predictive of a worker’s 

classification status, the finalized 

standard provides more accurate 

guidance. 

To the extent that some businesses 

and independent contractors familiar 

with the Department’s earlier 

subregulatory guidance might spend 

less time reviewing new regulatory 

language on the topic under this 

alternative, any reduction in initial 

regulatory familiarization costs 

compared to the streamlined test 

adopted in this final rule would likely 

be minimal. By contrast, and as we 

explained in the NPRM, codification of 

the traditional six-factor balancing test 

would yield smaller recurring benefits 

and cost savings over the long term, as 

the Department continues to believe in 

the added clarity of an appropriately 

weighted test with less overlapping 

redundancy. 

The Department further believes that 

reinstatement of AI 2015–1’s specific 

articulation of the six-factor test would 

be inappropriate because that 

withdrawn guidance exacerbates the 

very shortcomings that this rule 

remedies. As discussed in Section III(A), 

the first such shortcoming is the need 

for consistent application of economic 

dependence. While the AI 2015–1 

correctly stated that ‘‘[t]he ultimate 

inquiry under the FLSA is whether the 

worker is economically dependent on 

the employer or truly in business for 

him or herself,’’ it failed to apply that 

concept consistently. Notably, it 

explained that the investment factor 

should be analyzed by comparing the 

amount of the worker’s investments 

with the amount the potential employer 

invests because ‘‘[i]f the worker’s 

investment is relatively minor, that 

suggests that the worker and the 

[potential] employer are not on similar 

footings and that the worker may be 

economically dependent on the 

employer.’’ But the correct concept of 

economic dependence is not an inquiry 

into whether two entities are on a 

‘‘similar footing,’’ but rather whether an 

individual is in business for him- or 

herself.253 Such an approach to the 

investment factor is misleading by 

placing the focus on the worker’s 

financial means instead of the worker’s 

relationship with the purported 

employer. Several cases explicitly or 

implicitly reject the ‘‘similar footing’’ 

analysis, most plainly because 

independent contractors routinely work 

for companies with whom they are not 

on a ‘‘similar footing.’’ See Karlson, 860 

F.3d at 1096 (‘‘Large corporations can 

hire independent contractors’’). The 

‘‘similar footing’’ concept of economic 

dependence is also inconsistent with 

the Supreme Court’s analysis in Silk, 

331 U.S. 718, which found that truck 

drivers who invested in their own 

vehicles were independent contractors 

who transported coal for a coal 

company. The Court did not compare 


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254See Dynamex, 416 P.3d 1; Assembly Bill 

(‘‘A.B.’’) 5, Ch. 296, 2019–2020 Reg. Sess. (Cal. 

2019) (codifying the ABC test articulated in 

Dynamex); A.B. 2257, Ch. 38, 2019–2020 Reg. Sess. 

(Cal. 2020) (exempting certain professions, 

occupations, and industries from the ABC test that 

A.B. 5 had codified). The ABC test originated in 

state unemployment insurance statutes, but some 

state courts and legislatures have recently extended 

the test to govern employee/independent contractor 

disputes under state wage and hour laws. See Keith 

Cunningham-Parmeter, Gig-Dependence: Finding 

the Real Independent Contractors of Platform Work, 

39 N. Ill. U. L. Rev. 379, 408–11 (2019) (discussing 

the origins and recent expansion of the ABC test). 

255California’s ABC test is slightly more stringent 

than versions of the ABC test adopted (or presently 

under consideration) in other states. For example, 

New Jersey provides that a hiring entity may satisfy 

the ABC test’s ‘‘B’’ prong by establishing either: (1) 

That the work provided is outside the usual course 

of the business for which the work is performed, or 

(2) that the work performed is outside all the places 

of business of the hiring entity. N.J. Stat. Ann. 

§ 43:21–19(i)(6)(A–C). The Department has chosen 

to analyze California’s ABC test as a regulatory 

alternative because businesses subject to multiple 

standards, including nationwide businesses, are 

likely to comply with the most demanding standard 

if they wish to make consistent classification 

determinations. 

256See Cal. Code Regs., tit. 8, § 11090, subd. 2(D) 

(‘‘‘Employ’ means to engage, suffer, or permit to 

work.’’). The Dynamex court noted that California’s 

adoption of the ‘‘suffer or permit to work’’ standard 

predated the enactment of the FLSA and was 

therefore ‘‘not intended to embrace the Federal 

economic reality test’’ that subsequently developed. 

416 P.3d at 35. 

the relative investment of the drivers 

with that of the coal company or ask 

whether they were on a ‘‘similar 

footing’’—they obviously were not. 

Instead, the Court ruled that the drivers 

were independent contractors, in part 

because they had ‘‘the opportunity for 

profit from sound management’’ of their 

investment. Id. at 719. What matters is 

not the relative size of a worker’s 

investment, but whether the worker has 

a meaningful opportunity for profit or 

loss based on that investment. 

The second shortcoming discussed at 

Section III(B) is the need for guidance 

regarding which economic reality 

factors are more probative. AI 2015–1 

exacerbates this shortcoming by 

relegating the more probative control 

factor while elevating the less probative 

‘‘integral part’’ factor. In particular, AI– 

2015 stated that ‘‘[t]he control factor 

should not overtake the other factors of 

the economic realities test.’’ Such 

guidance is plainly inconsistent with 

cases in which control explicitly 

‘‘overtakes’’ other factors. See, e.g., 

Saleem; 854 F.3d at 147 (‘‘whatever ‘the 

permanence or duration’ of Plaintiffs’ 

affiliation with Defendants, both its 

length and the ‘regularity’ of work was 

entirely of Plaintiffs’ choosing’’ (citation 

omitted)); Selker Bros. 84 F.3d at 147 

(‘‘Given the degree of control exercised 

by Selker over the day-to-day operations 

of the stations, this [use of special skills] 

cannot be said to support a conclusion 

of independent contractor status.’’). 

Deemphasizing the control factor is also 

at odds with commonsense logic; 

control over the work seems to be 

extremely probative as to whether an 

individual is in business for him- or 

herself. In addition to de-emphasizing a 

highly probative factor, AI–2015 also 

states that ‘‘[c]ourts have found the 

‘integral’ factor to be compelling,’’ citing 

Snell, 875 F.2d at 811 and Lauritzen, 

F.2d at 1537–38 for support. But both 

cited cases actually analyzed the 

‘‘integral part’’ factor as an afterthought: 

Each devoted only a few conclusory 

sentences to this factor after more in 

depth analysis of the other factors Snell, 

875 F.2d at 811 and Lauritzen, 835 F.2d 

at 1537–38. The ‘‘integral part’’ factor 

falls short of even an afterthought in the 

Fifth Circuit, which typically does not 

analyze it at all. As explained in Section 

IV(D)(5), the ‘‘integral part’’ factor—as 

used in AI 2015–1 to mean a worker’s 

importance to a business—is not 

supported by Supreme Court precedent 

and may send misleading signals in 

many cases. 

The third shortcoming discussed at 

Section III(C) is overlaps between 

economic reality factors, which 

undermines the structural benefits of a 

multifactor test by blurring the lines 

between factors. One type of overlap 

highlighted by the NPRM is the 

importation of the analysis of initiative 

and business judgment, which are 

already part of the control and 

opportunity factors, into the skill factor, 

thus ‘‘dilut[ing] the consideration of 

actual skill to the point of irrelevance.’’ 

85 FR 60607. Id. AI 2015–1 reinforces 

this problem by focusing the skill factor 

entirely on initiative and business 

judgment, thus eliminating 

consideration of skill: ‘‘A worker’s 

business skills, judgment, and initiative, 

not his or her technical skills, will aid 

in determining whether the worker is 

economically independent.’’ The 

withdrawn guidance makes clear that it 

is not simply that skill matters less than 

initiative, but that skill matters not at 

all, because it unequivocally states that 

‘‘specialized skill do not indicate that 

workers are in business for themselves.’’ 

This categorical statement, however, is 

supported by more circumspect case 

law explaining that ‘‘skill is not itself 

indicative of independent contractor 

status.’’ AI 2015–1 (quoting Superior 

Care, 84 F.2d at 1060 (emphasis 

added)); see also id. (‘‘the use of special 

skills is not itself indicative of 

independent contractor status’’ (quoting 

Selker Bros. 949 F.d at 1295) (emphasis 

added)). AI 2015–1’s categorical 

position is also at odds with the 

Supreme Court’s instruction in Silk that 

‘‘skill required’’ may be ‘‘important for 

decision.’’ 331 U.S. at 716; see also 

Simpkins, 893 F.3d at 966 (‘‘whether 

Simpkins had specialized skills, as well 

as the extent to which he employed 

them in performing his work, are 

[material] issues’’). 

Further, reinstating AI 2015–1 or 

otherwise adopting a six-factor test with 

overlapping factors and without 

guidance regarding the factors’ relative 

probative value would negate the 

overall beneficial effects that would 

likely result from this rule, which are 

discussed above. 

For these reasons, the Department 

declines commenters’ requests to 

reinstate AI 2015–1.The Department 

further notes that, unlike this rule, AI 

2015–1 was issued without notice and 

comment and thus did not benefit from 

helpful input from the regulated 

community. 

3. Codifying California’s ‘‘ABC’’ Test 

The most stringent regulatory 

alternative to the Department’s 

proposed rule would be to codify the 

‘‘ABC’’ test recently adopted under 

California’s state wage and hour law to 

distinguish between employee/ 

independent contractor statuses.254 As 

described by the California Supreme 

Court in Dynamex, ‘‘[t]he ABC test 

presumptively considers all workers to 

be employees, and permits workers to 

be classified as independent contractors 

only if the hiring business demonstrates 

that the worker in question satisfies 

each of three conditions: (a) That the 

worker is free from the control and 

direction of the hirer in connection with 

the performance of the work, both under 

the contract for the performance of the 

work and in fact; and (b) that the worker 

performs work that is outside the usual 

course of the hiring entity’s business; 

and (c) that the worker is customarily 

engaged in an independently 

established trade, occupation, or 

business of the same nature as that 

involved in the work performed.’’ 416 

P.3d at 34.255 In justifying the adoption 

of such a stringent test, the Dynamex 

court noted the existence of an 

‘‘exceptionally broad suffer or permit to 

work standard’’ in California’s wage and 

hour statute, id. at 31,256 as well as ‘‘the 

more general principle that wage orders 

are the type of remedial legislation that 

must be liberally construed in a manner 

that serves its remedial purposes.’’ Id. at 

32. 

On its face, California’s ABC test is far 

more restrictive of independent 

contracting arrangements than any 

formulation of an ‘‘economic reality’’ 


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balancing test, including the proposed 

rule. Whereas no single factor 

necessarily disqualifies a worker from 

independent contractor status under an 

economic reality test, each of the ABC 

test’s three factors may alone disqualify 

the worker from independent contractor 

status. Thus, the NPRM stated that 

adoption of an ABC test to govern 

independent contractor status under the 

FLSA would directly result in a largescale reclassification of many workers 

presently classified as independent 

contractors into FLSA-covered 

employees, particularly those in 

industries that depend on independent 

contracting arrangements within the 

‘‘usual course of the hiring entity’s 

business.’’ Dynamex, 416 P.3d at 34. 

While some independent contractors 

might benefit from reclassification by 

newly receiving overtime pay or a 

guaranteed minimum wage, these 

workers might also experience a 

reduction in work hours or diminished 

scheduling flexibility as their new 

employers attempt to avoid incurring 

additional expenses for overtime work. 

Others workers, particularly off-site 

workers who operate free from the 

business’ direct control and supervision, 

might see their work arrangements 

terminated by businesses unwilling or 

unable to assume the financial burden 

and legal risk of the FLSA’s overtime 

pay requirement. After highlighting 

some of the reports of adverse 

consequences experienced by workers 

and businesses in California following 

the passage A.B. 5, the Department 

concluded that adopting the ABC test as 

the FLSA’s generally applicable 

standard for distinguishing employees 

from independent contractors would be 

unduly restrictive and disruptive to the 

economy. Finally, as a matter of law, the 

Department asserted that adoption of 

California’s ABC test would be 

inconsistent with the more flexible 

economic reality test adopted by the 

Supreme Court, as it would cover 

workers who have been held by the 

Supreme Court to be independent 

contractors under the economic reality 

test. See Silk, 331 U.S. at 719; Bartels, 

332 U.S. at 130. 

The Department received a large 

volume of commenter feedback on the 

merits of California’s ABC test. While 

the majority of these comments were 

highly critical of the standard, it did 

have several supporters. Commenters in 

favor of the ABC test asserted that, as 

the regulatory alternative most 

restrictive of independent contracting 

considered by the Department, it would 

best effectuate Congress’ intent to 

extend FLSA coverage broadly and 

reduce unlawful misclassification of 

employees as independent contractors. 

See, e.g., Matt Brown; National 

Domestic Workers Alliance; Public 

Justice Center; SEIU. Numerous 

commenters asserted that the ABC test, 

with its three individually 

determinative factors, was also the 

clearest and most predictable approach 

considered. See, e.g., International 

Brotherhood of Teamsters; Writers 

Guild of America, East, AFL–CIO. New 

York University’s People’s Parity Project 

argued that ‘‘[g]iven the importance of 

the California market to the national 

economy and the fact that it follows the 

more stringent ABC standard, any 

business that wishes to operate in 

California, and any national business, 

will have economic motivation to follow 

the ABC standard.’’ NELA similarly 

disputed concerns that adoption of the 

ABC test would be unduly disruptive, 

asserting that Massachusetts wage and 

hour law has used an ABC test since 

2004 and that ‘‘[m]any other states, 

including New Jersey, Illinois, 

Connecticut, and Hawaii, use an ABC 

test for certain [other] purposes, and 

have similarly suffered no disruption to 

their economies.’’ Finally, regarding the 

Department’s legal authority to adopt 

the ABC test, NELA asserted that ‘‘none 

of the cases on which the Department 

relies suggest that the multi-factor test is 

the only way to test ‘economic reality’ 

or that the ABC test ignores ‘economic 

reality.’ ’’ 

A diverse array of commenters voiced 

strong opposition to adopting an ABC 

test under the FLSA, including law 

firms, trade associations, advocacy 

organizations, academics, and 

individual freelancers. Several 

commenters dedicated the entirety or 

vast majority of their comment towards 

criticizing California’s ABC test. See, 

e.g., American Consumer Institute 

Center for Citizen Research (ACI); Fight 

for Freelancers USA; Institute for the 

American Worker; Joint Comment of the 

Pacific Legal Foundation (PLF), the 

American Society of Journalists and 

Authors, Inc. (ASJA), and the National 

Press Photographers Association 

(NPPA); Dr. Palagashvili; The People v. 

AB5. The primary objection voiced by 

commenters critical of the ABC test 

regarded the disruptive economic effects 

of implementing such a stringent 

standard, with several asserting that an 

ABC test would devastate their industry. 

See, e.g., American Council of Life 

Insurers (‘‘Thousands of jobs would 

likely have been lost had the California 

legislature failed to create [an 

exemption for insurance 

professionals].’’); Coalition of Practicing 

Translators & Interpreters of California 

(CoPTIC) (‘‘[A.B. 5] posed an existential 

threat to the survival of our 

profession.’’); Intermodal Association of 

North America (IANA)) (‘‘The ABC test 

essentially eliminates the independent 

contractor model for motor carriers 

involved in intermodal drayage.’’). 

Several commenters invoked the 

numerous exemptions to the ABC test 

that California lawmakers initially 

adopted in A.B. 5 and subsequently 

expanded in A.B. 2257 as evidence of 

the standard’s overreach. See, e.g., 

California Chamber of Commerce 

(‘‘During the first few months of the 

2020 Legislative Session, more than 30 

bills were introduced to add a myriad of 

exemptions to the ABC test. . . . As a 

result of the adoption of AB 2257, 

which was signed into law in 

September, there are now 109 

exemptions to the ABC test.’’); Rep. 

Virginia Foxx et al. (‘‘Rather than setting 

a dependable and workable standard, 

the AB 5 framework results in arbitrary 

treatment of industries based on 

political considerations to the detriment 

of workers.’’); Joint Comment of PLF, 

ASJA, and NPPA (‘‘If a law requires 

dozens of exceptions to avoid 

destroying the careers of successful 

independent professionals, it is a strong 

indication that the law’s basic 

premise—the ABC test—is flawed.’’). 

Some individual freelancers, including 

writer Karen Kroll, filmmaker/actor 

Margarita Reyes, unspecified 

professional Chun Fung Kevin Chiu, 

and unspecified professional Carola 

Berger, asserted that the ABC test is 

falsely premised on the assumption that 

all independent contractors, or at least 

those who provide services in a client’s 

usual course of business, feel exploited 

and would prefer to be employees. The 

Independent Women’s Forum and Dr. 

Palagashvili asserted that the ABC test 

implemented in California 

disproportionately burdened female 

workers with caregiving responsibilities, 

who are less able to find adequately 

flexible work schedules through 

traditional employment. Finally, some 

commenters agreed with the 

Department’s conclusion in the NPRM 

that Supreme Court precedent precludes 

the Department from adopting an ABC 

test under the FLSA. See NRF; FMI— 

The Food Industry Association. 

After reviewing commenter feedback, 

the Department continues to believe that 

the ABC test would be infeasible, 

difficult to administer, and disruptive to 

the economy if adopted as the FLSA 

standard. The weight of data, 

arguments, and anecdotes that 

commenters shared about the ABC test’s 


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257See Kate Conger, ‘‘Uber and Lyft Drivers in 

California Will Remain Contractors,’’ NY Times 

(Nov. 4, 2020), https://www.nytimes.com/2020/11/ 

04/technology/california-uber-lyft-prop-22.html. 

effects in California support the NPRM’s 

conclusion that adopting an ABC test 

would have unacceptably disruptive 

economic effects. For instance, a selfemployed ‘‘professional handyman with 

technical skills in furniture assembly 

and home repair’’ stated that ‘‘[a]s a 

California resident, it has been 

concerning to watch the way AB–5 has 

affected our state. I don’t believe 

legislators should make decisions that 

make it harder for people like me to find 

work and earn a living the way we want 

to.’’ A medical translator stated that 

‘‘ABC test simply doesn’t work in my 

field and it is not a fair standard to 

measure my situation. The original AB5 

law in California was destructive to the 

livelihood of many of my colleagues in 

that state.’’ And as a final illustrative 

example, a freelance journalist in 

California characterized that state’s 

adoption of the ABC test as an ‘‘attempt 

to legislate an entire class of 

entrepreneurs out of business.’’ See 

also, e.g., People vs. AB5; Fight for 

Freelancers; NPPA; WPI. 

Moreover, as commenters pointed out, 

the numerous exemptions initially and 

subsequently passed by the California 

legislature indicate the ABC test’s 

inadequacy as a generally applicable 

standard, as well as its unpopularity 

with affected stakeholders. An ‘‘owner 

of a small, one-woman business in 

California’’ explained in her comment 

that ‘‘[t]he absurdity and overreach of 

AB5 is evidenced by the numerous 

attempts at clean-up bills in California 

(SB 875, SB 1039, SB 900, AB 1850, AB 

2257 . . .) that clogged the CA 

legislative landscape for months, 

culminating in the now adopted AB 

2257, which lists too many exemptions 

to count.’’ The recent passage of the 

high-profile Proposition 22 ballot 

initiative in California,257 which 

occurred shortly after the end of the 

comment period for this rulemaking and 

exempted numerous gig workers from 

the ABC test, is further evidence in this 

regard. 

While California retains the ABC test 

for some industries but not others, the 

Department is required to apply the 

FLSA consistently for all covered 

industries (absent explicit statutory 

authority to do otherwise). Thus, if the 

Department adopted the ABC test, that 

standard would apply to virtually all 

industries nationwide, including 

numerous industries that the 

Californian legislature and voters 

exempted because they would suffer 

undue disruption under that standard. 

NELA contended that adoption of the 

ABC test by Massachusetts has not led 

to the same type of disruption 

experienced in California, which is 

disputed by some commenters from 

Massachusetts. See e.g., New Jobs for 

Massachusetts; IFA; Fight for 

Freelancers. But even if NELA were 

correct, a nationwide ABC test would 

still disrupt California, the state with 

the largest population and economy, 

and likely many others. In the 

Department’s view, the fact that a legal 

standard may be disruptive in only 

some states (e.g., California) but not 

others (e.g., Massachusetts) is not a 

persuasive reason for nationwide 

adoption. 

Additionally, the Department 

continues to believe that it lacks legal 

authority to adopt the ABC test under 

the FLSA because that test is far too 

rigid and restrictive of independent 

contracting arrangements. As a 

threshold matter, each of the ABC test’s 

three independently determinative 

factors would contradict binding 

Supreme Court precedent applying the 

economic reality test, where ‘‘[n]o one 

[factor] is controlling.’’ Silk, 331 U.S. at 

716. In particular, the test’s ‘‘B’’ prong— 

denying independent contractor status 

unless the contractor ‘‘performs work 

that is outside the usual course of the 

hiring entity’s business’’—would 

contradict the Court’s recognition in 

Silk that ‘‘[f]ew businesses are so 

completely integrated that they can 

themselves produce the raw material, 

manufacture and distribute the finished 

product to the ultimate consumer 

without assistance from independent 

contractors.’’ 331 U.S. at 714; see also 

Rutherford Food, 331 U.S. at 729 

(recognizing that ‘‘[t]here may be 

independent contractors who take part 

in [the] production or distribution’’ of a 

hiring party). Indeed, application of 

California’s ABC test would result in 

different classification outcomes than 

those the Supreme Court arrived at 

applying the economic reality test in 

Silk, 331 U.S. at 719 (ruling that 

truckers who were ‘‘an integral part of 

the businesses of retailing coal or 

transporting freight’’ were independent 

contractors), and Bartels, 332 U.S. at 130 

(concluding that musicians were 

independent contractors rather than 

employees of the music hall where they 

played). Absent revised guidance from 

the Supreme Court or Congressional 

legislation amending the FLSA statute, 

the Department continues to believe that 

it lacks the legal authority to implement 

a California-style ‘‘ABC’’ test through 

administrative rulemaking. 

NELA contended that ‘‘an ABC test is 

more faithful to the broad, remedial 

purpose of the FLSA.’’ According to 

NELA, ‘‘[a]t its core, the FLSA is a 

remedial statute’’ and therefore, the 

Department should interpret the FLSA’s 

standard of employment to be broader 

than economic dependence. However, 

the Supreme Court warned against 

relying on ‘‘flawed premise that the 

FLSA ‘pursues’ its remedial purpose ‘at 

all costs’ ’’ when interpreting the Act. 

Encino, 138 S. Ct. at 1142; see also 

Bristol, 935 F.3d 122 (‘‘ ‘[A] fair reading’ 

of the FLSA, neither narrow nor broad, 

is what is called for.’’ (quoting Encino, 

138 S. Ct. at 1142)); Diaz, 751 F. App’x 

at, 758 (rejecting request to interpret 

FLSA provisions to provide ‘‘broad’’ 

coverage because ‘‘[w]e must instead 

give the FLSA a ‘fair’ interpretation.’’). 

Furthermore, even if remedial statutes 

should be liberally construed, the ABC 

test still runs afoul of the Supreme 

Court’s stated limits on the extent of the 

FLSA’s definition of employment, as 

explained above. As such, the 

Department may not (and no court has 

ever suggested that it could) replace the 

economic reality test with the ABC test 

to be faithful to the FLSA’s remedial 

purpose. 

In sum, legal constraints and the 

disruptive economic effects of adopting 

the ABC test in the FLSA context. As we 

stated in the NPRM, the Department 

engaged in this rulemaking to clarify the 

existing standard, not to radically 

transform it. 

H. Summary of Impacts 

In summary, the Department believes 

that this rule will increase clarity 

regarding whether a worker is classified 

as an employee or an independent 

contractor under the FLSA. This clarity 

could result in an increased use of 

independent contractors. The costs and 

benefits to a worker being classified as 

an independent contractor are discussed 

throughout this analysis, and are 

summarized below. 

The Department believes that there 

are real benefits to the use of 

independent contractor status, for both 

workers and employers. Independent 

contractors generally have greater 

autonomy and more flexibility in their 

hours, providing them more control 

over the management of their time. The 

use of independent contracting for 

employers allows for a more flexible 

and dynamic workforce, where workers 

provide labor and skills where and 

when they are needed. Independent 

contractors may more easily work for 

multiple companies simultaneously, 

have more control over their laborleisure balance, and more explicitly 


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258 In some situations, independent contractors 

may be provided with benefits similar to those 

provided to employees. 

259SBA, Summary of Size Standards by Industry 

Sector, 2017, www.sba.gov/document/support— 

table-size-standards. 

260The most recent size standards were issued in 

2019. However, the Department used the 2017 

standards for consistency with the older Economic 

Census data. 

261The 2012 data are the most recently available 

with revenue data. 

262For this analysis, the Department excluded 

independent contractors who are not registered as 

small businesses, and who are generally not 

captured in the Economic Census, from the 

calculation of small establishments. 

263 2017 Census of Governments. https://

www.census.gov/data/tables/2017/econ/gus/2017- 

governments.html. 

264A Compensation/Benefits Specialist ensures 

company compliance with Federal and state laws, 

including reporting requirements; evaluates job 

positions, determining classification, exempt or 

non-exempt status, and salary; plans, develops, 

evaluates, improves, and communicates methods 

and techniques for selecting, promoting, 

compensating, evaluating, and training workers. See 

BLS, ‘‘13–1141 Compensation, Benefits, and Job 

Analysis Specialists,’’ https://www.bls.gov/oes/ 

current/oes131141.htm. 

265Note that the NPRM reported $3.86 which is 

the cost per job, rather than the cost per 

independent contractor. 

266Lim et al, supra note 75 at 51. 

define the nature of their work. 

Independent contractors also appear to 

have higher job satisfaction. 

An increase in the number of job 

openings for independent contractors 

can also have benefits for the economy 

as a whole. Increased job creation and 

enhanced flexibility in work 

arrangements are critical benefits during 

periods of economic uncertainty, such 

as the current COVID–19 pandemic. 

There are also certain challenges that 

face independent contractors compared 

to employees subject to the FLSA. 

Independent contractors are not subject 

to the protections of the FLSA, such as 

minimum wage and overtime pay. 

Independent contractors generally do 

not receive the same employer-provided 

benefits as employees, such as health 

insurance, retirement contributions, and 

paid time off.258 Independent 

contractors may have a higher tax 

liability than employees, as they are 

legally obligated to pay both the 

employee and employer shares of the 

Federal Insurance Contributions Act 

(FICA) taxes. However, economists 

recognize that payroll taxes generally 

are subtracted from the wage rate of 

employees. Employers also cover 

unemployment insurance and workers’ 

compensation taxes for their employees. 

These costs are also components of 

businesses’ worker costs, and employee 

wages are expected to reflect that 

accordingly. Independent contractors do 

not pay these taxes nor are they 

generally protected by these insurance 

programs, but there are private 

insurance companies that offer 

equivalent coverage. 

Because the Department does not 

know how many workers may shift from 

employee status to independent 

contractor status, or how many people 

who were previously unemployed or 

out of the labor force will gain work as 

an independent contractor, these costs 

and benefits have not been quantified. 

VII. Regulatory Flexibility Act 

The Regulatory Flexibility Act of 1980 

(RFA), 5 U.S.C. 601 et seq., as amended 

by the Small Business Regulatory 

Enforcement Fairness Act of 1996, 

Public Law 104–121 (1996), requires 

Federal agencies engaged in rulemaking 

to consider the impact of their proposals 

on small entities, consider alternatives 

to minimize that impact, and solicit 

public comment on their analyses. The 

RFA requires the assessment of the 

impact of a regulation on a wide range 

of small entities, including small 

businesses, not-for-profit organizations, 

and small governmental jurisdictions. 

Accordingly, the Department examined 

the regulatory requirements of this final 

rule to determine whether they would 

have a significant economic impact on 

a substantial number of small entities. 

Because both costs and cost savings are 

minimal for small business entities, the 

Department certifies that this final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

The Department used the Small 

Business Administration size standards, 

which determine whether a business 

qualifies for small-business status, to 

estimate the number of small 

entities.259 260 The Department then 

applied these thresholds to the U.S. 

Census Bureau’s 2012 Economic Census 

to obtain the number of establishments 

with employment or sales/receipts 

below the small business threshold in 

the industry.261 These ratios of small to 

large establishments were then applied 

to the more recent 2017 Economic 

Census data on number of 

establishments.262 Next, the Department 

estimated the number of small 

governments, defined as having 

population less than 50,000, from the 

2017 Census of Governments.263 In 

total, the Department estimated there 

are 6.4 million small establishments or 

governments. 

The Department assumes that a 

Compensation, Benefits, and Job 

Analysis Specialist (SOC 13–1141) (or a 

staff member in a similar position) will 

review the rule.264 According to the 

Occupational Employment Statistics 

(OES), these workers had a mean wage 

of $33.58 per hour in 2019 (most recent 

data available). Given the proposed 

clarification to the Department’s 

interpretation of who is an employee 

and who is an independent contractor 

under the FLSA, the Department 

assumes that it will take on average 

about 1 hour to review the rule as 

proposed. The Department believes that 

an hour, on average, is appropriate, 

because while some establishments will 

spend longer than one hour to review 

the rule, many establishments may rely 

on third-party summaries of the changes 

or spend little or no time reviewing the 

rule. Assuming benefits are paid at a 

rate of 46 percent of the base wage, and 

overhead costs are 17 percent of the 

base wage, the reviewer’s effective 

hourly rate is $54.74; thus, the average 

cost per establishment conducting 

regulatory familiarization is $54.74. The 

per-entity rule familiarization cost for 

independent contractors, some of whom 

would be small businesses, is $11.59, or 

the fully loaded mean hourly wage of 

independent contractors in the CWS 

($46.36) multiplied by 0.25 hour. The 

Department believes that 15 minutes, on 

average, is appropriate, because while 

some independent contractors will 

spend longer than one hour to review 

the rule, many will spend little or no 

time reviewing the rule. 

The cost savings due to increased 

clarity estimated per year for each small 

business employer is $18.25, or the fully 

loaded mean hourly wage of a 

Compensation, Benefits, and Job 

Analysis Specialist multiplied by 0.33 

hours. The cost savings due to increased 

clarity for each independent contractor, 

some of whom would be a small 

business, is $4.14 per year, or the fully 

loaded mean hourly wage of 

independent contractors in the CWS 

multiplied by 0.89 hours.265 Because 

regulatory familiarization is a one-time 

cost and the cost savings from clarity 

recur each year, the Department expects 

cost savings to outweigh regulatory 

familiarization costs in the long run. 

Because both costs and cost savings are 

minimal for small business entities, and 

well below one percent of their gross 

annual revenues, which is typically at 

least $100,000 per year for the smallest 

businesses, the Department certifies that 

this final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

There is some evidence that small 

firms use independent contractors for a 

greater proportion of their workforce 

than large firms.266 If so, then it may be 

reasonable to assume that the increased 


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267See 2 U.S.C. 1501. 268Calculated using growth in the Gross Domestic 

Product deflator from 1995 to 2019. Bureau of 

Economic Analysis. Table 1.1.9. Implicit Price 

Deflators for Gross Domestic Product. 

269See 2 U.S.C. 1532(a)(4). 

270According to the Bureau of Economic 

Analysis, 2019 GDP was $21.43 trillion. https://

www.bea.gov/system/files/2020-02/gdp4q19_2nd_

0.pdf. 

use of independent contractors may also 

favor smaller companies. In which case, 

costs and benefits and cost savings may 

be larger for these small firms. Because 

benefits and cost savings are expected to 

outweigh costs, the Department does not 

expect this rule will result in an undue 

hardship for small businesses. 

AFL–CIO disagreed with including 

cost savings from increased clarity for 

independent contractors. They argue 

that ‘‘the independent contractors at 

issue—those who falls [sic] close to the 

line separating independent contractors 

from employees are not themselves 

employers, they provide services solely 

as individuals and they have no need to 

determine if they are themselves 

independent contractors.’’ They 

additionally stated that the analysis 

failed to include compliance costs for 

the new small businesses created—the 

workers newly classified as 

independent contractors. Specifically, 

these new independent contractors will 

have increased regulatory burden due to 

additional accounting and tax filing 

costs. The Department believes it did 

address this because workers who 

choose to pursue independent 

contractor roles will not take them 

unless they believe the gains will offset 

the costs. 

The AFL–CIO asserts that the 

Department failed to conduct the 

outreach to small businesses as required 

by Section 609(a) of the RFA. The 

Department notes that these 

requirements only apply when the rule 

will have a significant economic impact 

on a substantial number of small 

entities, which is not the case for this 

rulemaking. 

VIII. Unfunded Mandates Reform Act 

Analysis 

The Unfunded Mandates Reform Act 

of 1995 (UMRA) 267 requires agencies to 

prepare a written statement for rules 

with a Federal mandate that may result 

in increased expenditures by state, 

local, and tribal governments, in the 

aggregate, or by the private sector, of 

$156 million ($100 million in 1995 

dollars adjusted for inflation) or more in 

at least one year.268 This statement 

must: (1) Identify the authorizing 

legislation; (2) present the estimated 

costs and benefits of the rule and, to the 

extent that such estimates are feasible 

and relevant, its estimated effects on the 

national economy; (3) summarize and 

evaluate state, local, and tribal 

government input; and (4) identify 

reasonable alternatives and select, or 

explain the non-selection, of the least 

costly, most cost-effective, or least 

burdensome alternative. 

A. Authorizing Legislation 

This final rule is issued pursuant to 

the Fair Labor Standards Act, 29 U.S.C. 

201, et seq. 

B. Assessment of Costs and Benefits 

For purposes of the UMRA, this rule 

includes a Federal mandate that is 

expected to result in increased 

expenditures by the private sector of 

more than $156 million in at least one 

year, but will not result in increased 

expenditures by state, local, and tribal 

governments, in the aggregate, of $156 

million or more in any one year. 

Based on the cost analysis from this 

final rule, the Department determined 

that it will result in Year 1 total costs 

for state and local governments totaling 

$1.7 million, all for regulatory 

familiarization. There will be no 

additional costs incurred in subsequent 

years. 

The Department determined that the 

rule will result in Year 1 total costs for 

the private sector of $369.2 million, all 

of them incurred for regulatory 

familiarization. The Department 

included all independent contractors in 

the private sector total regulatory 

familiarization costs. There will be no 

additional costs incurred in subsequent 

years. 

UMRA requires agencies to estimate 

the effect of a regulation on the national 

economy if such estimates are 

reasonably feasible and the effect is 

relevant and material.269 However, OMB 

guidance on this requirement notes that 

such macroeconomic effects tend to be 

measurable in nationwide econometric 

models only if the economic effect of 

the regulation reaches 0.25 percent to 

0.5 percent of Gross Domestic Product 

(GDP), or in the range of $53.6 billion 

to $107.2 billion (using 2019 GDP).270 A 

regulation with a smaller aggregate 

effect is not likely to have a measurable 

effect in macroeconomic terms, unless it 

is highly focused on a particular 

geographic region or economic sector, 

which is not the case with this rule. 

The Department’s RIA estimates that 

the total costs of the final rule will be 

$369.2 million. Given OMB’s guidance, 

the Department has determined that a 

full macroeconomic analysis is not 

likely to show that these costs would 

have any measurable effect on the 

economy. 

Many commenters claim that the rule 

will result in costs to Federal and state 

governments in the form of increased 

public assistance and decreased tax 

revenue. The Department discussed 

these potential costs in the RIA and 

directs the reader to Section VI(E)(2)(ii). 

The State AGs stated that the 

Department failed to include the 

increased administrative and 

enforcement costs to states due to the 

change in the standard for determining 

independent contractor status under the 

FLSA. They wrote that states ‘‘would 

need to invest time and resources into 

training agency employees and 

educating the public,’’ particularly in 

states with laws that are more restrictive 

than the economic reality test. States do 

not enforce Federal laws and therefore 

have no need to train their personnel in 

the enforcement of the FLSA or the 

Department’s regulations. There is also 

no need for states to be ‘‘educating’’ the 

public about FLSA regulations—aside 

from pointing out that Federal law may 

impose different requirements than state 

labor laws. Finally, under the nation’s 

federalist system, states may and often 

do enact and enforce labor standards 

and are more restrictive than Federal 

standards. A state’s decision to do so, 

however, rests with the state because no 

state is forced to enact labor standards 

that are stricter than the Federal 

standard. Any costs associated with 

implementing a stricter standard, 

including training and education, reflect 

the free choice of the individual state, 

and not the existence of a different 

Federal standard. As such, costs that a 

state choose to bear in enacting and 

enforcing their own laws are the result 

of the state’s own decision, and are 

outside the scope of the unfunded 

mandate concept. 

C. Least Burdensome Option Explained 

The Department believes that it has 

chosen the least burdensome but still 

cost-effective methodology to clarify the 

FLSA’s distinction between employees 

and independent contractors. Although 

the regulation will impose costs for 

regulatory familiarization, the 

Department believes that its proposal 

would reduce the overall burden on 

organizations by simplifying and 

clarifying the analysis for determining 

whether a worker is classified as an 

employee or an independent contractor 

under the FLSA. The Department 

believes that, after familiarization, this 

rule will reduce the time spent by 

organizations to determine whether a 

worker is an independent contractor. 

Moreover, the additional clarification 


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could promote innovation and certainty 

in business relationships. The AFPF 

agreed ‘‘that the Department has 

adequately analyzed potential 

alternatives as well as selected the least 

burdensome option under the Unfunded 

Mandates Reform Act of 1995.’’ 

IX. Effects on Families 

The undersigned hereby certifies that 

the proposed rule would not adversely 

affect the well-being of families, as 

discussed under section 654 of the 

Treasury and General Government 

Appropriations Act, 1999. 

List of Subjects 

29 CFR Part 780 

Agriculture, Child labor, Wages. 

29 CFR Part 788 

Forests and forest products, Wages. 

29 CFR Part 795 

Employment, Wages. 

Signed at Washington, DC, this 31st day of 

December, 2020. 

Cheryl M. Stanton, 

Administrator, Wage and Hour Division. 

For the reasons set out in the 

preamble, the Department of Labor 

amends 29 CFR chapter V as follows: 

PART 780—EXEMPTIONS 

APPLICABLE TO AGRICULTURE, 

PROCESSING OF AGRICULTURAL 

COMMODITIES, AND RELATED 

SUBJECTS UNDER THE FAIR LABOR 

STANDARDS ACT 

■ 1. The authority citation for part 780 

continues to read as follows: 

Authority: Secs. 1–19, 52 Stat. 1060, as 

amended; 29 U.S.C. 201–219. 

■ 2. Amend § 780.330 by revising 

paragraph (b) to read as follows: 

§ 780.330 Sharecroppers and tenant 

farmers. 

* * * * * 

(b) In determining whether such 

individuals are employees or 

independent contractors, the criteria 

laid down in §§ 795.100 through 

795.110 of this chapter are used. 

* * * * * 

PART 788—FORESTRY OR LOGGING 

OPERATIONS IN WHICH NOT MORE 

THAN EIGHT EMPLOYEES ARE 

EMPLOYED 

■ 3. The authority citation for part 788 

continues to read as follows: 

Authority: Secs. 1–19, 52 Stat. 1060, as 

amended; 29 U.S.C. 201–219. 

■ 4. Amend § 788.16 by revising 

paragraph (a) to read as follows: 

§ 788.16 Employment relationship. 

(a) In determining whether 

individuals are employees or 

independent contractors, the criteria 

laid down in §§ 795.100 through 

795.110 of this chapter are used. 

* * * * * 

■ 5. Add part 795 to subchapter B to 

read as follows: 

PART 795—EMPLOYEE OR 

INDEPENDENT CONTRACTOR 

CLASSIFICATION UNDER THE FAIR 

LABOR STANDARDS ACT 

Sec. 

795.100 Introductory statement. 

795.105 Determining employee and 

independent contractor classification 

under the FLSA. 

795.110 Primacy of actual practice. 

795.115 Examples of analyzing economic 

reality factors. 

795.120 Severability. 

Authority: 52 Stat. 1060, as amended; 29 

U.S.C. 201–219. 

§ 795.100 Introductory statement. 

This part contains the Department of 

Labor’s general interpretations of the 

text governing individuals’ 

classification as employees or 

independent contractors under the Fair 

Labor Standards Act (FLSA or Act). See 

29 U.S.C. 201–19. The Administrator of 

the Wage and Hour Division will use 

these interpretations to guide the 

performance of his or her duties under 

the Act, and intends the interpretations 

to be used by employers, employees, 

and courts to understand employers’ 

obligations and employees’ rights under 

the Act. To the extent that prior 

administrative rulings, interpretations, 

practices, or enforcement policies 

relating to classification as an employee 

or independent contractor under the Act 

are inconsistent or in conflict with the 

interpretations stated in this part, they 

are hereby rescinded. The 

interpretations stated in this part may be 

relied upon in accordance with section 

10 of the Portal-to-Portal Act, 29 U.S.C. 

251–262, notwithstanding that after any 

such act or omission in the course of 

such reliance, any such interpretation in 

this part ‘‘is modified or rescinded or is 

determined by judicial authority to be 

invalid or of no legal effect.’’ 29 U.S.C. 

259. 

§ 795.105 Determining employee and 

independent contractor classification under 

the FLSA. 

(a) Independent contractors are not 

employees under the Act. An individual 

who renders services to a potential 

employer—i.e., a putative employer or 

alleged employer—as an independent 

contractor is not that potential 

employer’s employee under the Act. As 

such, sections 6, 7, and 11 of the Act, 

which impose obligations on employers 

regarding their employees, are 

inapplicable. Accordingly, the Act does 

not require a potential employer to pay 

an independent contractor either the 

minimum wage or overtime pay under 

sections 6 or 7. Nor does section 11 of 

the Act require a potential employer to 

keep records regarding an independent 

contractor’s activities. 

(b) Economic dependence as the 

ultimate inquiry. An ‘‘employee’’ under 

the Act is an individual whom an 

employer suffers, permits, or otherwise 

employs to work. 29 U.S.C. 203(e)(1), 

(g). An employer suffers or permits an 

individual to work as an employee if, as 

a matter of economic reality, the 

individual is economically dependent 

on that employer for work. Rutherford 

Food Corp. v. McComb, 331 U.S. 722, 

727 (1947); Bartels v. Birmingham, 332 

U.S. 126, 130 (1947). An individual is 

an independent contractor, as 

distinguished from an ‘‘employee’’ 

under the Act, if the individual is, as a 

matter of economic reality, in business 

for him- or herself. 

(c) Determining economic 

dependence. The economic reality 

factors in paragraph (d) of this section 

guide the determination of whether the 

relationship between an individual and 

a potential employer is one of economic 

dependence and therefore whether an 

individual is properly classified as an 

employee or independent contractor. 

These factors are not exhaustive, and no 

single factor is dispositive. However, the 

two core factors listed in paragraph 

(d)(1) of this section are the most 

probative as to whether or not an 

individual is an economically 

dependent ‘‘employee,’’ 29 U.S.C. 

203(e)(1), and each therefore typically 

carries greater weight in the analysis 

than any other factor. Given these two 

core factors’ greater probative value, if 

they both point towards the same 

classification, whether employee or 

independent contractor, there is a 

substantial likelihood that is the 

individual’s accurate classification. This 

is because other factors are less 

probative and, in some cases, may not 

be probative at all, and thus are highly 

unlikely, either individually or 

collectively, to outweigh the combined 

probative value of the two core factors. 

(d) Economic reality factors—(1) Core 

factors—(i) The nature and degree of 

control over the work. This factor 

weighs towards the individual being an 

independent contractor to the extent the 

individual, as opposed to the potential 

employer, exercises substantial control 

over key aspects of the performance of 


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the work, such as by setting his or her 

own schedule, by selecting his or her 

projects, and/or through the ability to 

work for others, which might include 

the potential employer’s competitors. In 

contrast, this factor weighs in favor of 

the individual being an employee under 

the Act to the extent the potential 

employer, as opposed to the individual, 

exercises substantial control over key 

aspects of the performance of the work, 

such as by controlling the individual’s 

schedule or workload and/or by directly 

or indirectly requiring the individual to 

work exclusively for the potential 

employer. Requiring the individual to 

comply with specific legal obligations, 

satisfy health and safety standards, carry 

insurance, meet contractually agreedupon deadlines or quality control 

standards, or satisfy other similar terms 

that are typical of contractual 

relationships between businesses (as 

opposed to employment relationships) 

does not constitute control that makes 

the individual more or less likely to be 

an employee under the Act. 

(ii) The individual’s opportunity for 

profit or loss. This factor weighs 

towards the individual being an 

independent contractor to the extent the 

individual has an opportunity to earn 

profits or incur losses based on his or 

her exercise of initiative (such as 

managerial skill or business acumen or 

judgment) or management of his or her 

investment in or capital expenditure on, 

for example, helpers or equipment or 

material to further his or her work. 

While the effects of the individual’s 

exercise of initiative and management of 

investment are both considered under 

this factor, the individual does not need 

to have an opportunity for profit or loss 

based on both for this factor to weigh 

towards the individual being an 

independent contractor. This factor 

weighs towards the individual being an 

employee to the extent the individual is 

unable to affect his or her earnings or is 

only able to do so by working more 

hours or faster. 

(2) Other factors—(i) The amount of 

skill required for the work. This factor 

weighs in favor of the individual being 

an independent contractor to the extent 

the work at issue requires specialized 

training or skill that the potential 

employer does not provide. This factor 

weighs in favor of the individual being 

an employee to the extent the work at 

issue requires no specialized training or 

skill and/or the individual is dependent 

upon the potential employer to equip 

him or her with any skills or training 

necessary to perform the job. 

(ii) The degree of permanence of the 

working relationship between the 

individual and the potential employer. 

This factor weighs in favor of the 

individual being an independent 

contractor to the extent the work 

relationship is by design definite in 

duration or sporadic, which may 

include regularly occurring fixed 

periods of work, although the seasonal 

nature of work by itself would not 

necessarily indicate independent 

contractor classification. This factor 

weighs in favor of the individual being 

an employee to the extent the work 

relationship is instead by design 

indefinite in duration or continuous. 

(iii) Whether the work is part of an 

integrated unit of production. This 

factor weighs in favor of the individual 

being an employee to the extent his or 

her work is a component of the potential 

employer’s integrated production 

process for a good or service. This factor 

weighs in favor of an individual being 

an independent contractor to the extent 

his or her work is segregable from the 

potential employer’s production 

process. This factor is different from the 

concept of the importance or centrality 

of the individual’s work to the potential 

employer’s business. 

(iv) Additional factors. Additional 

factors may be relevant in determining 

whether an individual is an employee or 

independent contractor for purposes of 

the FLSA, but only if the factors in some 

way indicate whether the individual is 

in business for him- or herself, as 

opposed to being economically 

dependent on the potential employer for 

work. 

§ 795.110 Primacy of actual practice. 

In evaluating the individual’s 

economic dependence on the potential 

employer, the actual practice of the 

parties involved is more relevant than 

what may be contractually or 

theoretically possible. For example, an 

individual’s theoretical abilities to 

negotiate prices or to work for 

competing businesses are less 

meaningful if, as a practical matter, the 

individual is prevented from exercising 

such rights. Likewise, a business’ 

contractual authority to supervise or 

discipline an individual may be of little 

relevance if in practice the business 

never exercises such authority. 

§ 795.115 Examples of analyzing economic 

reality factors. 

(a) The following illustrative 

examples demonstrate how the factors 

listed in § 795.105(d) may be analyzed 

under the facts presented and are 

limited to substantially similar factual 

situations. 

(b)(1)(i) Example. An individual is the 

owner and operator of a tractor-trailer 

and performs transportation services for 

a logistics company. The owneroperator substantially controls the key 

aspects of the work. However, the 

logistics company has installed, at its 

own expense, a device that limits the 

maximum speed of the owner-operator’s 

vehicle and monitors the speed through 

GPS. The company limits the owneroperator’s speed in order to comply 

with federally mandated motor carrier 

safety regulations and to ensure that she 

complies with local traffic laws. The 

company also requires the owneroperator to meet certain contractually 

agreed-upon delivery deadlines, and her 

contract includes agreed-upon 

incentives for meeting, and penalties for 

missing, the deadlines. 

(ii) Application. The owner-operator 

exercises substantial control over key 

aspects of her work, indicating 

independent contractor status. The fact 

that the company has installed a device 

that limits and monitors the speed of the 

owner-operator’s vehicle does not 

change the above conclusion. This 

measure is implemented in order to 

comply with specific legal obligations 

and to ensure safety, and thus under 

§ 795.105(d)(1)(i) would not constitute 

control that makes the owner-operator 

more or less likely to be an employee 

under the Act. The contractually agreedupon delivery deadlines, incentives, 

and penalties are typical of contractual 

relationships between businesses and 

likewise would not constitute control 

that makes the owner-operator more or 

less likely to be an employee under the 

Act. 

(2)(i) Example. An individual accepts 

assignments from a company that 

provides an app-based service linking 

those who need home-repair work with 

those who perform home-repair work. 

The individual is able to meaningful 

increase his earnings by exercising 

initiative and business acumen and by 

investing in his own equipment. The 

company, however, has invested 

millions of dollars in developing and 

maintaining the app, marketing itself, 

maintaining the security of information 

submitted by actual and prospective 

customers and workers, and monitoring 

customer satisfaction with the work 

performed. 

(ii) Application. The opportunity for 

profit or loss factor favors independent 

contractor status for the individual, 

despite the substantial difference in the 

monetary value of the investments made 

by each party. While the company may 

have invested substantially more in its 

business, the value of that investment is 

not relevant in determining whether the 

individual has a meaningful 

opportunity for profit or loss through 

his initiative, investment, or both. 


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(3)(i) Example. An individual worker 

works full time performing home 

renovation and repair services for a 

residential construction company. She 

is also the part owner of a food truck, 

which she operates on weekends. In 

performing the construction work, the 

worker is paid a fixed hourly rate, and 

the company determines how many and 

which tasks she performs. Her food 

truck recently became very popular and 

has generated substantial profits for her. 

(ii) Application. With regard to the 

construction work, the worker does not 

have a meaningful opportunity for profit 

or loss based on her exercise of 

initiative or investment, indicating 

employee status. She is unable to profit, 

i.e., increase her earnings, by exercising 

initiative or managing investments 

because she is paid a fixed hourly rate 

and the company determines the 

assignment of work. While she earns 

substantial profits through her food 

truck, that is a separate business from 

her work in the construction industry, 

and therefore is not relevant to the 

question of whether she is an employee 

of the construction company or in 

business for herself in the construction 

industry. 

(4)(i) Example. A housekeeper works 

for a ski resort every winter. At the end 

of each winter, he stops working for the 

ski resort because the resort shuts down. 

At the beginning of each of the past 

several winters, the housekeeper 

returned to his prior position at the ski 

resort without formally applying or 

interviewing. 

(ii) Application. The housekeeper has 

a long-term and indefinite work 

relationship with the ski resort under 

the permanence factor, which weighs in 

favor of classification as an employee. 

That his periods of working for the ski 

resort end at the end of each winter is 

a result of the seasonal nature of the ski 

industry and is thus not indicative of a 

sporadic relationship. The fact that the 

housekeeper returns to his prior 

position each new season indicates that 

his relationship with ski resort does not 

end and is indefinite as a matter of 

economic reality. 

(5)(i) Example. An editor works parttime for a newspaper. The editor works 

from home and is responsible for 

assigning and reviewing many articles 

published by the newspaper. Sometimes 

she also writes or rewrites articles. The 

editor is responsible for determining the 

layout and order in which all articles 

appear in the newspaper’s print and 

online editions. She makes assignment 

and lay-out decisions in coordination 

with several full-time editors who make 

similar decisions with respect to 

different articles in the same publication 

and who are employees of the 

newspaper. 

(ii) Application. The editor is part of 

an integrated unit of production of the 

newspaper because she is involved in 

the entire production process of the 

newspaper, including assigning, 

reviewing, drafting, and laying out 

articles. This factor points in the 

direction of her being an employee of 

the newspaper. This conclusion is 

further supported by the fact that the 

editor performs the same work as 

employees of the newspaper in 

coordination with those employees. The 

fact that she does not physically work 

at the newspaper’s office does not 

outweigh these more probative 

considerations of the integrated unit 

factor. 

(6)(i) Example. A journalist writes 

articles for a newspaper on a freelance 

basis. The journalist does not have an 

office and generally works from home. 

He submits an article to the newspaper 

once every 2 to 3 weeks, which the 

newspaper may accept or reject. The 

journalist sometimes corresponds with 

the newspaper’s editor regarding what 

to write about or regarding revisions to 

the articles that he submits, but he does 

not otherwise communicate or work 

with any of the newspaper’s employees. 

The journalist never assigns articles to 

others nor does he review or revise 

articles that others submit. He is not 

responsible for determining where his 

article or any other articles appear in the 

newspaper’s print and online editions. 

(ii) Application. The journalist is not 

part of an integrated unit of production 

of the newspaper, indicating 

independent contractor status. His work 

is limited to the specific articles that he 

submits and is completely segregated 

from other parts of the newspaper’s 

processes that serve its specific, unified 

purpose of producing newspapers. It is 

not relevant in analyzing this factor that 

the writing of articles is an important 

part of producing newspapers. Likewise, 

the fact that he works at home does not 

strongly indicate either status, because 

the nature of the journalist’s work is 

such that the physical location where it 

is performed is largely irrelevant. 

§ 795.120 Severability. 

If any provision of this part is held to 

be invalid or unenforceable by its terms, 

or as applied to any person or 

circumstance, or stayed pending further 

agency action, the provision shall be 

construed so as to continue to give the 

maximum effect to the provision 

permitted by law, unless such holding 

shall be one of utter invalidity or 

unenforceability, in which event the 

provision shall be severable from this 

part and shall not affect the remainder 

thereof. 

[FR Doc. 2020–29274 Filed 1–6–21; 8:45 am] 

BILLING CODE 4510–27–P 


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