The U.S. Department of Labor (DOL) announced a new proposed rule  for determining whether workers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Under FLSA, nonprofits and other employers are required to pay a minimum wage and offer overtime pay for certain workers who are classified as employees. Independent contractors aren’t entitled to these or other benefits of employees.

The new rule would replace a rule from early 2021 that made it easier for employers to classify workers as independent contractors. The current rule focuses on two criteria – opportunity for profit or loss and control over work – in determining whether workers are employees or independent contractors. The proposed new rule would return to a more traditional six-factor “economic realities” test that would consider:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control by the employer;
5. Extent to which the work performed is an integral part of the employer’s business; and 
6. The worker’s skill and initiative.
7. Opportunity for profit or loss depending on managerial skill;
8. Investments by the worker and the employer;
9. Degree of permanence of the work relationship;
10. Nature and degree of control by the employer;
11. Extent to which the work performed is an integral part of the employer’s business; and
12. The worker’s skill and initiative.

The new rule may mean that more nonprofit workers need to be classified as employees rather than independent contractors and receive employee benefits. The proposed rule is open for public comments through November 28.

Separately, DOL is planning to release new proposed regulations on the salary threshold under the FLSA later this month. Currently, FLSA requires employers, including nonprofits, to pay their employees at least $7.25 per hour and to pay employees one-and-one-half times their regular rate of pay when they work more than 40 hours in a workweek. Employees are exempt from the FLSA overtime pay requirement if they:

Are paid on a salary basis (meaning they are paid the same amount each week regardless of how many hours they actually work);

Are paid at least $684 per week ($35,568 per year); and

Exercise job duties that are classified as  administrative,  executive, or  professional.