On January 9, 2024, the U.S. Department of Labor announced a final rule revising the Department’s guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA), which will be effective on March 11, 2024. The final rule repeals the Independent Contractor Status Under the Fair Labor Standards Act rule (2021 IC Rule), which was published in 2021, replacing it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent.
The misclassification of employees as independent contractors can deny workers minimum wage, overtime pay, and other protections. This final rule reduces the risk that employees are misclassified as independent contractors while also providing a consistent approach for businesses that engage with individuals who are in business for themselves.
The final rule will have major ramifications for the gig economy, as app-based platforms have typically classified their delivery drivers and other gig workers as independent contractors. Other occupations that may be similarly affected are freelance workers or consultants such as writers, musicians, IT professionals, trainers, and other people whose work is project-based.
Under the new framework, the DOL will consider six factors when examining the relationship between a potential employer and workers.
These factors are:
- The degree of permanence of the work relationship.
- The nature and degree of control over the performance of the work.
- The worker’s opportunity for profit or loss.
- The use of the worker’s skill and initiative.
- Investments made by the worker and the employer.
- The extent to which the work performed is an integral part of the employer’s business.
This final rule overturns the 2021 rule where two core factors—control over the work and opportunity for profit or loss—carried a greater weight for determining the statuses of independent contractors. Under this new rule, employers will use a totality-of-the-circumstances analysis, where none of the factors carry a greater weight than others.
The rule was published in the Federal Register on Wednesday, January 10, and is slated to take effect March 11, with the DOL planning to release further guidance to help employers stay in compliance with this rule.
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