On January 9, 2024, the U.S. Department of Labor (“DOL”) issued the final rule for Employee or Independent Contractor Classification under the Fair Labor Standards Act (“FLSA”). This rule addresses when employers can classify workers as independent contractors under federal labor law.
Six-factor “economic realities test”
The DOL will rely on the six-factor “economic realities test” to analyze employee or independent contractor status under the FLSA. The six factors, which are non-exhaustive, are the following:
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.
Court challenges expected
It is expected that the rule will face court challenges like other rules under this administration and previous ones have faced. But to avoid the legal risks and repercussions of misclassifying a worker’s status, employers should exercise caution and seek legal advice to ensure that all appropriate factors are considered.
The final rule has become effective on March 11, 2024.
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