Labor Department Unveils Final Rule on Independent Contractor Classification

Today, the U.S. Department of Labor (DOL) released the details of a long-awaited final rule to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). 

The DOL's final independent contractor rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act, establishes a six-factor test that the Department believes will protect workers from misclassification and provide a consistent approach for those businesses that use independent contractors. In addition, here is a fact sheet from the DOL that outlines how to determine if a worker is an employee or an independent contractor under the FLSA.

Originally proposed in October 2022, the DOL’s final version enforces the FLSA to ensure that workers who should be covered under the Act are properly classified as employees.  The final rule also seeks to ensure that  employers that comply with the law are not placed at a competitive disadvantage against employers that misclassify employees. 

The rule will be published in the Federal Register on Wednesday, January 10, 2024, and will take effect March 11, 2024, the DOL said.

According to the DOL, the final rule:

• Restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the FLSA;
• Ensures that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors;
• Uses the longstanding interpretation of the economic reality factors. These factors include:
  1. opportunity for profit or loss depending on managerial skill;
  2. investments by the worker and the potential employer;
  3. the degree of permanence of the work relationship;
  4. the nature and degree of control;
  5. the extent to which the work performed is an integral part of the potential employer’s business;
  6. the worker’s skill and initiative; and
• Rescinds the 2021 Independent Contractor Rule.

The DOL’s original version of the rule was challenged in court.  The final rule may also face a court challenge.  The Johnson & Bell Employment group will provide future updates as appropriate. 

If you have any questions about the use of independent contractors by your organization, please contact Shareholders Christopher J. Carlos or Caroline K. Vickrey.

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