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Federal Register / Vol. 86, No. 86 / Thursday, May 6, 2021 / Rules and Regulations consistent with obtaining the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits.184 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. The analysis below outlines the impacts that the Department anticipates may result from the Rules withdrawal and was prepared pursuant to the above-mentioned executive orders.
B. Background On January 7, 2021, WHD published a final rule titled Independent Contractor Status Under the Fair Labor Standards Act Independent Contractor Rule or Rule.185 In this final rule, the Department is withdrawing the Independent Contractor Rule, which has not taken effect. Aside from minimal rule familiarization costs, the Department also provides below a qualitative discussion of the transfers that may be avoided by withdrawing the Rule.
C. Costs 1. Rule Familiarization Costs Withdrawing the Independent Contractor Rule will impose direct costs on businesses that will need to review the withdrawal. To estimate these regulatory familiarization costs, the Department determined: 1 The number of potentially affected entities, 2 the average hourly wage rate of the employees reviewing the withdrawal, and 3 the amount of time required to review the withdrawal. It is uncertain whether these entities would incur regulatory familiarization costs at the firm or the establishment level.186 For example, in smaller businesses there might be just one specialist reviewing the withdrawal, while larger businesses might review it at corporate headquarters and determine policy for all establishments owned by the business. To avoid underestimating the
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184 See
76 FR 3821 Jan. 21, 2011.
86 FR 1168. WHD had published a notice of proposed rulemaking requesting comments on a proposal. See 85 FR 60600 Sept. 25, 2020. The final rule adopted the interpretive guidance set forth in that proposal largely as proposed. 86 FR
1168.
186 An establishment is a single physical location where one predominant activity occurs. A firm is an establishment or a combination of establishments.
185 See
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costs of the withdrawal, the Department uses both the number of establishments and the number of firms to estimate a potential range for regulatory familiarization costs. The lower bound of the range is calculated assuming that one specialist per firm will review the withdrawal, and the upper bound of the range assumes one specialist per establishment.
The most recent data on private sector entities at the time this NPRM was drafted are from the 2017 Statistics of U.S. Businesses SUSB, which reports 5,996,900 private firms and 7,860,674
private establishments with paid employees.187 Because the Department is unable to determine how many of these businesses are interested in using independent contractors, this analysis assumes all businesses will undertake review.
The Department believes ten minutes per entity, on average, to be an appropriate review time here. This rulemaking would withdraw the Independent Contractor Rule and would not set forth any new regulations in its place. Additionally, the Department believes that many entities do not use independent contractors and thus would not spend any time reviewing the withdrawal. Therefore, the ten-minute review time represents an average of no time for the entities that do not use independent contractors, and potentially more than ten minutes for review by some entities that might use independent contractors.
The Departments analysis assumes that the withdrawal would be reviewed by Compensation, Benefits, and Job Analysis Specialists SOC 131141 or employees of similar status and comparable pay. The median hourly wage for these workers was $31.04 per hour in 2019, the most recent year of data available.188 The Department also assumes that benefits are paid at a rate of 46 percent 189 and overhead costs are paid at a rate of 17 percent of the base wage, resulting in a fully loaded hourly rate of $50.60.
The Department estimates that the lower bound of regulatory familiarization cost range would be $50,675,004 5,996,900 firms $50.60
0.167 hours, and the upper bound, $66,424,267 7,860,674 establishments
187 Statistics of U.S. Businesses 2017, https
www.census.gov/data/tables/2017/econ/susb/2017susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry.
188 Occupational Employment and Wages, May 2019, https www.bls.gov/oes/current/
oes131141.htm.
189 The benefits-earnings ratio is derived from the Bureau of Labor Statistics Employer Costs for Employee Compensation data using variables CMU1020000000000D and CMU1030000000000D.

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$50.60 0.167 hours. The Department estimates that all regulatory familiarization costs would occur in Year 1.
Additionally, the Department estimated average annualized costs of this proposed withdrawal over 10 years.
Over 10 years, it would have an average annual cost of $6.7 million to $8.8
million, calculated at a 7 percent discount rate $5.8 million to $7.6
million calculated at a 3 percent discount rate. All costs are in 2019
dollars.
In their comment, the Financial Services Institute FSI asserted that the rule familiarization costs are understated because they fail to consider the costs that will be imposed on stakeholders by repeating their activities of the very recent notice/
comment period. However, they also acknowledged that there has been no change in law since the Independent Contractor Rule was announced. The Department notes that estimates of rule familiarization costs do not usually include the time it takes stakeholders to comment on the rule, and instead only include the time it takes to read and become familiar with the final rule.
2. Other Impacts In the Independent Contractor Rule, the Department estimated cost savings associated with increased clarity, as well as cost savings associated with reduced litigation. The Department does not anticipate that this withdrawal will increase costs in these areas, or result in greater costs as compared to the Rule.
Although the intent of the Independent Contractor Rule was to provide clarity, it would also have introduced several concepts to the FLSA economic realities analysis that neither courts nor WHD
have previously applied. Because the Rule would have been unfamiliar and could have led to inconsistent approaches and/or outcomes, and because withdrawal maintains the status quo, the Department does not believe that withdrawal of the Independent Contractor Rule will result in decreased clarity for stakeholders. As discussed above in section IIB, numerous commenters agreed that the Rule would not have increased clarity, and that there would have instead been increased litigation following the Rule due to uncertainty over whether and to what extent courts would adopt the Rules complicated guidance.
Some commenters asserted that there would be significant costs associated with withdrawing the Independent Contractor Rule. For example, the National Retail Federation NRF and Littler Mendelsons Workplace Policy
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