The US Department of Labor is changing the standards under which an individual can be treated as an Independent Contractor, effective March 11, 2024. It is important that any business paying individuals as Independent Contractors review those arrangements to ensure compliance with this final rule under the Fair Labor Standards Act.
In the Department of Labor’s press release it was stated that the new rule “restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.“ This characterization is based on the fact that this proposed rule repeals the bright line standards put in place during the Trump administration and essentially restores the more subjective multifactor standard in place during the Obama administration.
The final rule that has been published is 339 pages long and very technical, but if you want to take a look for yourself: 2024-00067.pdf (federalregister.gov)
But to cut to the chase, the main points of what it takes to qualify as an Independent Contractor are found in the 7th FAQ published by the department:
What analysis guides whether a worker is an employee or independent contractor under this final rule?
This final rule continues to affirm that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. Consistent with judicial precedent and the Department’s interpretive guidance prior to 2021, the final rule applies the following six factors to analyze employee or independent contractor status under the FLSA:
(1) opportunity for profit or loss depending on managerial skill;
(2) investments by the worker and the potential employer;
(3) degree of permanence of the work relationship;
(4) nature and degree of control;
(5) extent to which the work performed is an integral part of the potential employer’s business; and
(6) skill and initiative.
The final rule provides detailed guidance regarding the application of each of these six factors. No factor or set of factors among this list of six has a predetermined weight, and additional factors may be relevant if such factors in some way indicate whether the worker is in business for themself (i.e., an independent contractor), as opposed to being economically dependent on the employer for work (i.e., an employee under the FLSA).
A full list of the FAQs can be found here:
For more information, watch The Small Business Briefing from Thursday, January 11, 2024.
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