
Michael J. Sheppeard
Partner
212-784-6939 msheppeard@sh-law.comFirm Insights
Author: Michael J. Sheppeard
Date: October 8, 2020

Partner
212-784-6939 msheppeard@sh-law.com
The Department of Labor (DOL) wants to make it easier for businesses to classify workers as independent contractors. The DOL’s recently published rule proposal establishes a new framework for determining when employers may legally classify workers as independent contractors rather than employees.
“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” Labor Secretary Eugene Scalia said in a press statement. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”
The Fair Labor Standards Act (FLSA) requires covered employers to pay their non-exempt employees at least the federal minimum wage for every hour worked and overtime pay for every hour worked over 40 in a workweek. However, a worker who performs services for an individual or entity as an independent contractor is not subject to the FLSA requirements.
As discussed in prior articles, worker misclassification occurs when a bona fide, common-law employee is classified to be an “independent contractor.” In some cases, worker misclassification is intentional so as to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. However, it can also occur simply because the employer misunderstands or misapplies the law. The FLSA does not define “independent contractor,” and the legal test for determining how to classify a worker varies from jurisdiction to jurisdiction.
On September 22, the DOL proposed new regulations setting forth its interpretation of the FLSA as relevant to the question whether workers are “employees” or are independent contractors under the Act. The proposed framework is an adaptation of the familiar economic reality test. Under the DOL’s proposal, the central inquiry as to whether an individual is an employee or independent contractor under the FLSA is whether, as a matter of economic reality, the individual is economically dependent on the potential employer for work.
The DOL’s proposes five factors that would guide the economic dependence analysis:
Notably, the DOL proposes that two of the factors—the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss—should be more probative of the question of economic dependence or lack thereof, and thereby afforded greater weight in the analysis than any others. As explained in the rule proposal:
As a result of their greater weight, if both core factors point towards the same classification, their combined weight is substantially likely to outweigh the combined weight of other factors that may point towards the opposite classification. In other words, where the two core factors align, the bulk of the analysis is complete. Anyone who is assessing the classification—whether a business, a worker, the Department, a court, or a jury—may approach the remaining factors and circumstances with skepticism, as only in unusual cases may such considerations outweigh the combination of the two core factors. At the same time, if the two core factors do not point toward the same classification, the remaining enumerated factors will usually determine the correct classification.
The DOL’s proposed regulations are now subject to a 30-day public comment period, which ends on October 26, 2020. As such, there may be changes before the regulations become final. If the proposed rule is finalized, it would contain the DOL’s sole and authoritative interpretation of independent contractor status under the FLSA.
The DOL’s proposed rule provides welcome guidance to New York and New Jersey businesses that use independent contractors and should help them verify that these workers are not actually employees. This is good news given that mistakes, no matter how inadvertent, can lead to costly employment lawsuits and legal penalties.
If you have any questions or if you would like to discuss the matter further, please contact me, Michael Sheppeard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Commercial real estate trends in 2026 are being shaped by shifting economic conditions, technological innovation, and evolving tenant demands. As the market adjusts to changing interest rates, capital flows, and workplace models, investors, owners, tenants, and developers must understand how these trends are influencing opportunities and risk in the year ahead. Overall Outlook for Commercial […]
Author: Michael J. Willner

Part 2 – Tips Excluded from Income Certain employees and independent contractors may be eligible to deduct tips from their income for tax years 2025 through 2028 under provisions included in the One Big Beautiful Bill. The deduction is capped at $25,000 per year and begins to phase out at $150,000 of modified adjusted gross […]
Author: Scott H. Novak

Part 1 – Overtime Pay and Income Tax Treatment Overview This Firm Insights post summarizes one provision of the “One Big Beautiful Bill” related to the tax treatment of overtime compensation and related employer wage reporting obligations. Overtime Pay and Employee Tax Treatment The Fair Labor Standards Act (FLSA) generally requires that overtime be paid […]
Author: Scott H. Novak

In 2025, New York enacted one of the most consequential updates to its consumer protection framework in decades. The Fostering Affordability and Integrity through Reasonable Business Practices Act (FAIR Act) significantly expands the scope and strength of New York’s long-standing consumer protection statute, General Business Law § 349, and alters the compliance landscape for New York […]
Author: Dan Brecher

For many New Jersey businesses, growth is a primary objective for the New Year. However, it is important to recognize that growth involves both opportunity and risk. For example, business expansion often results in complex contracts, an increased workforce, new regulatory requirements, and heightened exposure to disputes. Without proactive planning, even routine growth can lead […]
Author: Ken Hollenbeck

Crypto investor protection continues to evolve, with the SEC and CFTC investing resources and coordinating more closely to uphold regulatory standards. Whether you’re a retail investor, an institutional trader, or part of a crypto startup, understanding enforcement trends is essential for navigating this dynamic and high-stakes regulatory environment. Crypto Is No Longer the Wild West […]
Author: Dan Brecher
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!