On January 9, 2024, the U.S. Department of Labor (“DOL”) released the final details of their independent contractor status test. The final rule goes into effect on March 11, 2024, and revises the DOL’s guidance on how to analyze employee/independent contractor status under the Fair Labor Standards Act (“FLSA”). This test, detailing when companies can classify workers as independent contractors, has been heavily debated since the DOL struck down the last rule proposed by the Trump administration.
Why Does It Matter?
The independent contractor test and defining parameters matters because it triggers coverage under FLSA’s federal wage-and-hour law. The FLSA sets the rules for minimum wages and overtime, requires covered employers to keep certain records and imposes fines and penalties for not doing so. The FLSA requirements apply only to “employees” and not to independent contractors.
Quick Take
The Final Rule and its six-factor test marks a return to the DOL’s pre-Trump era guidance with its focus on whether the “economic reality” is that a worker is dependent on a company/employer for work, not income (and thus an employee), or is in business for themselves (and thus an independent contractor).
The Final Rule
The new independent contractor test focuses on the “economic realities of the working relationship” to determine whether the worker is economically dependent on the company for work or if the worker is in business for themselves. The new test is decidedly bent towards pro-employee status, and is based on the “totality of the circumstances” and includes the following six factors with no one factor presumed to carry more weight than another:
- The opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the company, e.g., if the company invested more in training, costs, tools and equipment for the individual to do the job, then this would sway in favor of employee status;
- Degree of permanence of the work relationship, e.g., a six-month position to carry out a specific deliverable may favor independent contractor status;
- Nature and degree of control of the worker – including supervisory and disciplinary control, including demands on worker time which may preclude the individual from working for others (more indicative of independent contractor status);
- The extent to which the work performed is an integral part of the company’s business; and
- The skill and initiative of the worker – determining whether the worker brings specialized skills to the business, or is the worker dependent on company training to learn and perform the job.
What Should Companies Do Now?
Employers should study the new rule carefully. It differs significantly from prior guidance. The 2024 final rule reinforces the DOL’s pro-employee view of worker classification and may create classification complications for companies which heavily rely on independent contractors. Employers should also evaluate their existing employee and independent contractor relationships and make necessary changes as needed. When in doubt, employers should work with experienced counsel.
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How Can Meyer, Unkovic & Scott Help You?
Meyer, Unkovic & Scott’s Employment Law Group actively represents clients faced with employment-related disputes ranging from discrimination and harassment claims, wage and hour claims, disputes related to employment agreements and non-compete agreements. For more information, please contact Beth A. Slagle on 412-456-2890 or at [email protected], or any MUS attorney with whom you have worked previously.