The U.S. Department of Labor (DOL) published on January 10, 2024, its Final Rule modifying the Wage and Hour Division regulations to provide guidance regarding whether workers are employees or independent contractors under the Fair Labor Standards Act (FLSA). The Final Rule rescinds a 2021 DOL rule defining independent contractor.
This Final Rule adopts the following six-factor test to determine independent contractor status:
1. the worker’s opportunity for profit or loss;
2. investments by the worker and potential employer;
3. the degree of permanence of the work relationship;
4. the nature and degree of the potential employer’s control over the work;
5. the extent to which the work performed is an integral part of the potential employer’s business; and
6. the worker’s skills and initiative.
This list is not exhaustive as other factors may be considered depending on the circumstances. This test is focused on the “economic reality” of the relationship between the potential employer and a worker. Essentially, this test assesses whether the worker depends on the potential employer for continued employment or is operating an independent business, considering the totality of the circumstances.
The FLSA establishes many fundamental employee rights including minimum wage, overtime pay, child labor and recordkeeping. Since the FLSA does not apply to independent contractors, the misclassification of employees as independent contractors may deny workers protections as minimum wage and overtime pay, among others. Misclassification of workers impacts employers as well, as they could be found in violation of the FLSA provisions, for example, by failing to maintain certain employee records.
This final rule is effective on March 11, 2024.