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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
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define the nature of their work.
Independent contractors also appear to have higher job satisfaction.
An increase in the number of job openings for independent contractors can also have benefits for the economy as a whole. Increased job creation and enhanced flexibility in work arrangements are critical benefits during periods of economic uncertainty, such as the current COVID19 pandemic.
There are also certain challenges that face independent contractors compared to employees subject to the FLSA.
Independent contractors are not subject to the protections of the FLSA, such as minimum wage and overtime pay.
Independent contractors generally do not receive the same employer-provided benefits as employees, such as health insurance, retirement contributions, and paid time off.258 Independent contractors may have a higher tax liability than employees, as they are legally obligated to pay both the employee and employer shares of the Federal Insurance Contributions Act FICA taxes. However, economists recognize that payroll taxes generally are subtracted from the wage rate of employees. Employers also cover unemployment insurance and workers compensation taxes for their employees.
These costs are also components of businesses worker costs, and employee wages are expected to reflect that accordingly. Independent contractors do not pay these taxes nor are they generally protected by these insurance programs, but there are private insurance companies that offer equivalent coverage.
Because the Department does not know how many workers may shift from employee status to independent contractor status, or how many people who were previously unemployed or out of the labor force will gain work as an independent contractor, these costs and benefits have not been quantified.
VII. Regulatory Flexibility Act The Regulatory Flexibility Act of 1980
RFA, 5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104121 1996, requires Federal agencies engaged in rulemaking to consider the impact of their proposals on small entities, consider alternatives to minimize that impact, and solicit public comment on their analyses. The RFA requires the assessment of the impact of a regulation on a wide range of small entities, including small 258 In
some situations, independent contractors may be provided with benefits similar to those provided to employees.

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businesses, not-for-profit organizations, and small governmental jurisdictions.
Accordingly, the Department examined the regulatory requirements of this final rule to determine whether they would have a significant economic impact on a substantial number of small entities.
Because both costs and cost savings are minimal for small business entities, the Department certifies that this final rule will not have a significant economic impact on a substantial number of small entities.
The Department used the Small Business Administration size standards, which determine whether a business qualifies for small-business status, to estimate the number of small entities.259 260 The Department then applied these thresholds to the U.S.
Census Bureaus 2012 Economic Census to obtain the number of establishments with employment or sales/receipts below the small business threshold in the industry.261 These ratios of small to large establishments were then applied to the more recent 2017 Economic Census data on number of establishments.262 Next, the Department estimated the number of small governments, defined as having population less than 50,000, from the 2017 Census of Governments.263 In total, the Department estimated there are 6.4 million small establishments or governments.
The Department assumes that a Compensation, Benefits, and Job Analysis Specialist SOC 131141 or a staff member in a similar position will review the rule.264 According to the Occupational Employment Statistics OES, these workers had a mean wage of $33.58 per hour in 2019 most recent data available. Given the proposed 259 SBA, Summary of Size Standards by Industry Sector, 2017, www.sba.gov/document/support table-size-standards.
260 The most recent size standards were issued in 2019. However, the Department used the 2017
standards for consistency with the older Economic Census data.
261 The 2012 data are the most recently available with revenue data.
262 For this analysis, the Department excluded independent contractors who are not registered as small businesses, and who are generally not captured in the Economic Census, from the calculation of small establishments.
263 2017 Census of Governments. https
www.census.gov/data/tables/2017/econ/gus/2017governments.html.
264 A Compensation/Benefits Specialist ensures company compliance with Federal and state laws, including reporting requirements; evaluates job positions, determining classification, exempt or non-exempt status, and salary; plans, develops, evaluates, improves, and communicates methods and techniques for selecting, promoting, compensating, evaluating, and training workers. See BLS, 131141 Compensation, Benefits, and Job Analysis Specialists, https www.bls.gov/oes/
current/oes131141.htm.

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clarification to the Departments interpretation of who is an employee and who is an independent contractor under the FLSA, the Department assumes that it will take on average about 1 hour to review the rule as proposed. The Department believes that an hour, on average, is appropriate, because while some establishments will spend longer than one hour to review the rule, many establishments may rely on third-party summaries of the changes or spend little or no time reviewing the rule. Assuming benefits are paid at a rate of 46 percent of the base wage, and overhead costs are 17 percent of the base wage, the reviewers effective hourly rate is $54.74; thus, the average cost per establishment conducting regulatory familiarization is $54.74. The per-entity rule familiarization cost for independent contractors, some of whom would be small businesses, is $11.59, or the fully loaded mean hourly wage of independent contractors in the CWS
$46.36 multiplied by 0.25 hour. The Department believes that 15 minutes, on average, is appropriate, because while some independent contractors will spend longer than one hour to review the rule, many will spend little or no time reviewing the rule.
The cost savings due to increased clarity estimated per year for each small business employer is $18.25, or the fully loaded mean hourly wage of a Compensation, Benefits, and Job Analysis Specialist multiplied by 0.33
hours. The cost savings due to increased clarity for each independent contractor, some of whom would be a small business, is $4.14 per year, or the fully loaded mean hourly wage of independent contractors in the CWS
multiplied by 0.89 hours.265 Because regulatory familiarization is a one-time cost and the cost savings from clarity recur each year, the Department expects cost savings to outweigh regulatory familiarization costs in the long run.
Because both costs and cost savings are minimal for small business entities, and well below one percent of their gross annual revenues, which is typically at least $100,000 per year for the smallest businesses, the Department certifies that this final rule will not have a significant economic impact on a substantial number of small entities.
There is some evidence that small firms use independent contractors for a greater proportion of their workforce than large firms.266 If so, then it may be reasonable to assume that the increased 265 Note that the NPRM reported $3.86 which is the cost per job, rather than the cost per independent contractor.
266 Lim et al, supra note 75 at 51.

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