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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
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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.
AFLCIO disagreed with including cost savings from increased clarity for independent contractors. They argue that the independent contractors at issuethose 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 createdthe 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 AFLCIO asserts that the Department failed to conduct the outreach to small businesses as required by Section 609a 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 267 See
2 U.S.C. 1501.
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.
268 Calculated
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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 A. Authorizing Legislation public assistance and decreased tax revenue. The Department discussed This final rule is issued pursuant to these potential costs in the RIA and the Fair Labor Standards Act, 29 U.S.C.
directs the reader to Section VIE2ii.
201, et seq.
The State AGs stated that the B. Assessment of Costs and Benefits Department failed to include the increased administrative and For purposes of the UMRA, this rule enforcement costs to states due to the includes a Federal mandate that is change in the standard for determining expected to result in increased independent contractor status under the expenditures by the private sector of FLSA. They wrote that states would more than $156 million in at least one need to invest time and resources into year, but will not result in increased training agency employees and expenditures by state, local, and tribal educating the public, particularly in governments, in the aggregate, of $156
states with laws that are more restrictive million or more in any one year.
than the economic reality test. States do Based on the cost analysis from this not enforce Federal laws and therefore final rule, the Department determined have no need to train their personnel in that it will result in Year 1 total costs the enforcement of the FLSA or the for state and local governments totaling Departments regulations. There is also $1.7 million, all for regulatory no need for states to be educating the familiarization. There will be no public about FLSA regulationsaside additional costs incurred in subsequent from pointing out that Federal law may years.
impose different requirements than state The Department determined that the labor laws. Finally, under the nations rule will result in Year 1 total costs for federalist system, states may and often the private sector of $369.2 million, all do enact and enforce labor standards of them incurred for regulatory and are more restrictive than Federal familiarization. The Department included all independent contractors in standards. A states decision to do so, however, rests with the state because no the private sector total regulatory state is forced to enact labor standards familiarization costs. There will be no that are stricter than the Federal additional costs incurred in subsequent standard. Any costs associated with years.
implementing a stricter standard, UMRA requires agencies to estimate the effect of a regulation on the national including training and education, reflect the free choice of the individual state, economy if such estimates are and not the existence of a different reasonably feasible and the effect is 269
relevant and material.
However, OMB Federal standard. As such, costs that a guidance on this requirement notes that state choose to bear in enacting and enforcing their own laws are the result such macroeconomic effects tend to be of the states own decision, and are measurable in nationwide econometric outside the scope of the unfunded models only if the economic effect of mandate concept.
the regulation reaches 0.25 percent to 0.5 percent of Gross Domestic Product C. Least Burdensome Option Explained GDP, or in the range of $53.6 billion The Department believes that it has to $107.2 billion using 2019 GDP.270 A chosen the least burdensome but still regulation with a smaller aggregate cost-effective methodology to clarify the effect is not likely to have a measurable FLSAs distinction between employees effect in macroeconomic terms, unless it and independent contractors. Although is highly focused on a particular the regulation will impose costs for geographic region or economic sector, regulatory familiarization, the which is not the case with this rule.
Department believes that its proposal The Departments RIA estimates that would reduce the overall burden on the total costs of the final rule will be organizations by simplifying and $369.2 million. Given OMBs guidance, clarifying the analysis for determining the Department has determined that a whether a worker is classified as an full macroeconomic analysis is not employee or an independent contractor likely to show that these costs would under the FLSA. The Department believes that, after familiarization, this 269 See 2 U.S.C. 1532a4.
rule will reduce the time spent by 270 According to the Bureau of Economic organizations to determine whether a Analysis, 2019 GDP was $21.43 trillion. https
worker is an independent contractor.
www.bea.gov/system/files/2020-02/gdp4q19_2nd_
0.pdf.
Moreover, the additional clarification reasonable alternatives and select, or explain the non-selection, of the least costly, most cost-effective, or least burdensome alternative.

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