On January 9, 2024, the Department of Labor (DOL) announced a new final rule for independent contractors under the Fair Labor Standards Act (FLSA)1. The new rule replaces the 2021 Independent Contractor Rule and provides guidance on how to analyze who is an employee or independent contractor under the FLSA2. The new rule takes effect on March 11, 20243. The new rule introduces a six-factor test for determining whether a worker is an employee or an independent contractor under the FLSA3. The six factors are:
- Control: The extent to which the employer controls or directs the work performed by the worker.
- Opportunity for profit or loss: The extent to which the worker has an opportunity for profit or loss depending on their managerial skill. Can the employee negotiate their pay or their rate? Can they do their own marketing and accept or reject jobs?
- Investment: The extent of the worker’s investment in facilities, equipment, or helpers. This is looking at what the worker is paying for. Is the worker bringing their own tools?
- Skill and initiative: The worker’s skill and initiative required to perform the work. Does this worker have a specialized skill to perform the job?
- Permanency of the relationship: The degree of permanency of the work relationship. Is the contractor going to just work on a project or on a short term basis.
- Integration: The extent to which the work is performed is an integral part of the employer’s business.
The new rule is expected to result in more workers being classified as employees under the FLSA4. The DOL believes that the new rule will help workers and businesses understand their rights and responsibilities under the FLSA2 .
The new rule goes into effect on March 11, 2024 and applies to the FLSA but not to the laws related to the Internal Revenue. Employees cannot waive their rights to be an employee, if they are an employee they must be classified as an employee.
Businesses should review how they have classified their employees and make sure all independent contractors pass the six-point test.
Revolution Law Group is located in Greensboro, NC, and serves individuals and small businesses throughout the Triad and surrounding areas. To contact us please visit Revolution.law or call 336-333-7907.
The information included here is for informational purposes only, is not exhaustive of all considerations when creating documents, is not intended to be legal advice, and should not be relied upon for that purpose. We strongly recommend you consult with an attorney and do not attempt to create your own documents.
1 Final Rule: Employee or Independent Contractor Classification Under the Fair Labor Standards Act, RIN 1235-AA43 | U.S. Department of Labor (dol.gov) https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking
2 Frequently Asked Questions – Final Rule: Employee or Independent Contractor Classification Under the FLSA | U.S. Department of Labor (dol.gov) https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking/faqs
3, 4 DOL narrows definition of “independent contractor” under FLSA | Nixon Peabody LLP