U.S. DOL Announces Its Final Rule on Employee / Independent Contractor Status

On January 9, 2024, the U.S. Department of Labor announced its final rule addressing contractor versus independent contractor status under the federal Fair Labor Standards Act (FLSA).  Currently, the rule is effective March 11, 2024.  There will undoubtedly be legal challenges which could force the rule to be paused (i.e., enjoined).

Note:  How time flies. We first reported on this issue back in October 2022 when the DOL released its proposed rule.  In that post, we discussed some of the (we think interesting) historical underpinnings and context surrounding these issues.  See article here.  

Back to the DOL’s final rule.  It is important to note that it applies only to the FLSA.  That is, for determining whether a worker is entitled to the protection under the wage and hour laws.   Be aware there are other tests and rules to determine independent contactor status depending on the context. For example, the federal Internal Revenue Service has its own rules and regulations for determining the applicability of employee payroll tax withholdings.  Therefore, when determining independent contractor status overall, it is not just about applying one set of rules.

The DOL describes the new rule as “a totality-of-the-circumstances economic reality test” where “no single factor or group of factors is assigned any predetermined weight.”   The primary focus of the analysis is whether the worker is economically dependent on the person or business that is providing the work.

The final rule adopts the following six factors to analyze employment or independent contractor status under the FLSA:

  1. opportunity for profit or loss depending on managerial skill;
  2. investments by the worker and the potential employer;
  3. degree of permanence of the work relationship;
  4. nature and degree of control;
  5. extent to which the work performed is an integral part of the potential employer’s business; and
  6. skill and initiative.

To reiterate, no one factor is determinative and the agency leaves open the possibility that other factors may shed light on whether the worker is in business for themselves versus being dependent on the alleged employer.   The rule provides detailed information regarding the application of each of these six factors.

Bottom Line

Regardless of whether the DOL’s rule will face legal challenges (as noted, it likely will), this development serves as an important reminder to review your independent contractor relationships and undertake a risk assessment.  As the DOL’s new rule makes clear, independent contractor analyses are factually intense.   The facts of any given situation often do not fit neatly within the tests which, in turn, requires judgment calls.   Members of our employment and labor group have the skill and expertise to help you navigate these murky issues.