Independent Contractor Final Rule (For Now)
The impact of the legal definition of “employee” versus “independent contractor” under the Fair Labor Standard Act (“FLSA”) and other employment laws cannot be understated. The FLSA’s minimum wage and overtime requirements—along with a vast array of other legal obligations employers owe to employees—simply do not apply to independent contractors. Unhelpfully, various regulatory agencies and courts have looked in the past to similar, but not quite identical, tests of independent contractor status. With so much riding on the right classification both in terms of lawsuits and dollars, any clarification of which test an employer should look to is absolutely critical guidance to U.S. businesses.
Enter the Department of Labor (“DOL”) and its January 7, 2021 publication of the final rule on classifying “Independent Contractor Status under the Fair Labor Standards Act” (the “Final Rule”), which goes into effect on March 8, 2021.
The Final Rule provides a multifactor “economic reality” test for determining whether workers are independent contractors and six examples of the DOL applying the multifactor test. The Rule provides that employers consider the following five factors in determining whether someone is an employee or an independent contractor:
- the nature and degree of the worker’s control over the work (a core factor according to the DOL);
- the worker’s opportunity for profit or loss (a core factor according to the DOL);
- the amount of skill required for the position;
- the permanence of the working relationship; and
- and how integrated the worker’s role is to the organization’s overall operation.