Yesterday, the DOL published a Final Rule, which will be effective March 8, 2021, outlining the analysis by which the DOL will consider whether a worker is an “employee,” and therefore potentially covered by the FLSA’s minimum wage or overtime laws, or an “independent contractor,” who is exempted from the FLSA and other employment laws.
The Final Rule reaffirms the use of the five-factor “economic realities” test, but notes that two factors are “core factors” and therefore most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
(1) The nature and degree of the worker’s control over the work, and
(2) The worker’s opportunity for profit or loss based on initiative, investment, or both.
Three other factors, the DOL concludes, may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
(3) The amount of skill required for the work.
(4) The degree of permanence of the working relationship between the individual and the potential employer.
(5) Whether the work is part of an integrated unit of production.
The DOL makes clear that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. By way of example, the DOL explains that “a business’ contractual authority to supervise or discipline an individual may be of little relevance if in practice the business never exercises such authority.”
Finally, the DOL’s the Final rule provides six fact-specific examples applying the factors.
Bottom Line
The DOL’s new rule, which is designed to make the independent contractor analysis “clearer and more consistent” will go into effect 60 days after it is published in the federal register. Time will tell whether the incoming administration will seek to invalidate or overturn the new rule.
We will continue to monitor this issue as it develops.