Final Rule Concerning Independent Contractors

On January 9, 2024, The U.S. Department of Labor (DOL) released a Final Rule that will take effect on March 11, 2024.  The Final Rule changes the criteria for classifying an individual as either an independent contractor or as an employee.  This rule change has serious ramifications for employers because under the federal Fair Labor Standards Act (FLSA), employees are entitled to a minimum wage, overtime pay, and other benefits, while independent contractors are not. In addition, unlike independent contractors, employees can form unions and file charges of unfair labor practices with the National Labor Relations Board (NLRB).

The Final Rule supersedes a previous rule issued by the DOL in 2021 which guided employers to conduct the employee/independent contractor analysis by focusing on (1) the individual’s control over the work and (2) the opportunity for profit or loss. With this analysis now gone, the Final Rule contains a new test in which employers must consider the totality-of-the-circumstances when conducting the same analysis. This totality-of-the-circumstances analysis consists of  six equally weighted and non-exclusive factors. These factors include: (1) the degree to which the employer controls how the work is done (if the control is significant, this factor would suggest employee status); (2) the worker’s opportunity for profit or loss (if the worker’s has the opportunity for profit or loss, this factor would suggest independent contractor status); (3) the amount of skill and initiative required for the work (the greater the skill and initiative, the more likely the worker is an independent contractor-although this factor is clearly the least indicative of employee-independent contractor status because many employees bring a high degree of skill and initiative to their jobs); (4) the degree of permanence of the working relationship (the greater the permanence, the more likely the worker is an employee); (5) the worker’s investment in equipment or materials required for the task (if the worker invests in equipment or materials required for the task, this factor suggests independent contractor status); and (6) the extent to which the service rendered is an integral part of the employer’s business (if the service is an integral part of the employer’s business, this factor would suggest employee status).

The DOL has emphasized that this guidance is not meant to be job or industry specific. Instead, the Final Rule is supposed to apply generally to all categories of workers. The DOL has also announced that it plans to supplement the Final Rule with subsequent guidance in order to help employers comply with this new standard. If you would like to read the final rule in its entirety, you can find it here.

For questions regarding the DOL’s Final Rule or any other labor and employment matter, please contact any of the attorneys at Hoffman & Hlavac. To stay updated on key labor and employment law developments that affect your workplace, be sure to subscribe to this blog and follow us on social media!