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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
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, there 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 DOLs new interpretation, meaning that companies and workers would now analyze their FLSA
independent contractor determinations under current precedent and also the agencys 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 131141 from the OES
multiplied by 1.63 to account for benefits and overhead. For independent 206 These
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.

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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 3COST SAVINGS FOR INCREASED CLARITY TO EMPLOYERS
AND INDEPENDENT CONTRACTORS
Parameter
Value
Number of new relationships per year:
Independent contractors
Number of jobs per contractor
New independent contractor jobs Adjustment factor

18,858,000
1.43
26,966,940
75%

Total

20,225,205

Time savings per job minutes:
Employers
Independent contractors
Value of time:
Employers
Independent contractors
Total savings:
Employers
Independent contractors

$369,011,556
$78,137,248

Total

$447,148,804

20
5 $54.74
$46.36

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 207 By applying these assumptions to the Departments estimates, instead of incorporating anticipated growth and innovation impacts, the results may be an underestimate of total cost savings.

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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 208 For 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.
210 PACER 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.
211 The 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, 5128081 reduced litigation estimate for the final rule updating the FLSAs white collar exemptions at 29 CFR part 541; 84 FR 68736,
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