The U.S. Department of Labor (DOL) issued a final rule regarding Independent Contractor Classification under the Fair Labor Standards Act (FLSA) aimed at reducing "the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves."
The new rule rescinds the prior 2021 rule, under the previous presidential administration, which established a more business-friendly approach to the independent contractor classification standard. The old rule considered only five factors with a focus on two of them:
- The nature and degree of control an employer had over a worker's work.
- The individual's opportunity for profit or loss.
The three factors with less weight were the degree of permanence of the work relationship, the amount of skill and initiative, and whether work performed was integral to the employer's business.
Effective on March 11, employer should ensure they are using the economic realities test when determining a worker's classification and applying equal weight to all six factors (outlined below); taking a closer look at the degree of control they have over workers classified as independent contractors; the exclusivity of the working relationship with such individuals; and the independent initiative involved for the worker. Most importantly, employers should re-evaluate employees to ensure they are all properly classified and make the necessary changes if needed.
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