Published January 23, 2024
The U.S. Department of Labor (DOL) has announced an important final rule, effective March 11, 2024, redefining the classification criteria for workers as either employees or independent contractors under the Fair Labor Standards Act (FLSA). This rule is key in determining workers’ rights to minimum wage and overtime pay.
Significantly deviating from the 2021 rule, this new regulation employs a comprehensive, multifactor “economic realities” test to ascertain a worker’s status. It encompasses six primary factors:
- The worker’s opportunity for profit or loss depending on managerial skill.
- The amount of investment by the worker.
- The degree of permanence of the work relationship.
- The nature and degree of the employer’s control over the work.
- The extent to which the work performed is an integral part of the employer’s business.
- The worker’s skill and initiative.
In contrast to the 2021 rule, which prioritized the worker’s profit or loss opportunities and the employer’s control over the work, this new rule mandates equal consideration for all these factors.
Key updates in the new rule include a nuanced analysis of the worker’s investments relative to those of the employer, a detailed approach to the permanence of the work relationship, and clarification that a company’s regulatory compliance actions do not automatically imply employer control. Furthermore, the rule underscores that the ability to work for multiple companies alone does not establish independent contractor status.
Employers are advised to carefully review their practices in light of the new rule. Misclassifying workers could result in considerable legal repercussions, including claims for unpaid overtime, minimum wages, liquidated damages, and attorneys’ fees. This development reflects the DOL’s continued emphasis on accurate worker classification and underscores the imperative for businesses to comply with prevailing laws.
For further details, please refer to the U.S. Department of Labor’s official release on their final rule, news release, and FAQs. You may also contact any member of Ryan Swanson’s Employment Rights, Benefits & Labor Group for more information.