The U.S. Department of Labor (DOL) has published a new regulation describing how to determine whether a worker is an independent contractor or employee under the federal Fair Labor Standards Act (FLSA). The regulation uses an “economic realities” test to evaluate whether the worker is economically dependent on the hiring entity (indicating employee status) or is in business for themselves (indicating independent contractor status). The DOL will consider these six nonexclusive factors:
- Opportunity for profit or loss depending on managerial skill (business judgment);
- Investments by the worker and the potential employer (capital investments and entrepreneurial investments, not just supplying tools);
- Degree of permanence of the work relationship (nonexclusive, project-based, or sporadic work due to the worker providing services to other entities);
- Nature and degree of control (including both control over the work and control over the pricing for the worker’s services);
- Extent to which the work performed is an integral part of the potential employer’s business (this focuses on the importance of the business function, not the importance of an individual to the business); and
- Skill and initiative (use of specialized skills that contribute to business initiative).
The distinction between employees and independent contractors is important to the DOL because only employees are entitled to minimum wage, overtime, and other protections under the FLSA. The DOL’s new regulation takes effect on March 11, 2024 (89 Fed Reg 1638, Jan. 10, 2024).
Tips: We previously reported that a federal district court had halted the DOL’s attempt under the Biden administration to withdraw a Trump-era DOL rule on independent contractor status. This newly published rule takes the place of the old rule, although it is also subject to challenge. Vigilant will keep members informed of any significant developments. In the meantime, you can learn more about the new rule by reviewing the FAQs and other information on the DOL webpage for the independent contractor rule.
