What happened?

The Office of Information and Regulatory Affairs (OIRA) has reviewed and cleared the DOL final rule on Independent Contractor Classification under the Fair Labor Standards Act (FLSA).

What are the details?

The rule was proposed on October 13, 2022, and comments were received until December 13, 2022. After this, the OIRA received it on September 28, 2023, and concluded the review on January 2, 2024.

It has been adopted a 6 non-exhaustive factor test, which is:

1. Worker’s opportunity for profit or loss.
2. Investments made by the worker and the employer.
3. Degree of permanence of the work relationship.
4. Nature and degree of control over performance of the work.
5. The extent to which the work is performed is an integral part of the employer’s business.
6. Use of the worker’s skill and initiative.

This factor test will be used in examining the relationship between a potential worker and a potential employer; additionally, a criterion of the “totality of the circumstances” will be used to determine the potential employee-employer relationship.

Business Considerations

• Employers must continue to be mindful of state laws (e.g., California, New Jersey, Massachusetts) that provide much more stringent tests to determine whether a worker is an independent contractor or an employee.
• Be careful when classifying workers as independent contractors and not employees, due to the rule being not only stacked against employers but having a friendly employee interpretation aid on the factors and test used.
• According to several experts, the new test will lead to more workers being classified as employes, so reevaluate the practices and procedures according to the new reality.
• Errors due to unpaid overtime and benefits can be not only risky but costly, so conduct an audit and work with an experienced attorney to evaluate your business and mitigate liability.

Resources

• Final Rule: Employee or Independent Contractor Classification Under the Fair Labor Standards Act, RIN 1235-AA43 (Wage and Hour Division)
• Misclassification of Employees as Independent Contractors (Wage and Hour Division)
• Independent Contractor Rule

Source References

• U.S. DOL Announces New Independent Contractor Rule Under FLSA (FordHarrison)
• DOL independent contractor final rule announced, will take effect March 11 (Industry Dive)
• Businesses Will Struggle to Classify Workers as Independent Contractors Thanks to New DOL Rule: 5 Takeaways (Fisher & Phillips LLP.)
• White House Clears Independent Contractor Final Rule (Proskauer Rose LLP.)
• DOL Unveils Final Independent Contractor Rule

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