Earlier this month, the Department of Labor’s Wage and Hour Division released its final rule regarding worker classification, entitled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act.” The final rule, which was published on January 10, 2024, becomes effective 60 days after publication in the Federal Register, which is March 11, 2024.
The final rule addresses how to determine whether a worker is properly classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA). The FLSA requires, among other things, that covered employers pay nonexempt employees at least the Federal minimum wage for all hours worked and at least one and one-half times the employee’s regular rate of pay for every hour worked over 40 in a workweek. However, the FLSA’s protections do not apply to independent contractors. Importantly, the FLSA does not define “independent contractor,” so courts and the Wage and Hour Division rely on the “economic reality test” to determine worker status. This test mandates a review of several factors to determine worker status. Those factors include:
- Opportunity for profit or loss depending on managerial skill.
- Investments by the worker and the employer.
- Degree of permanence of the work relationship.
- Nature and degree of control.
- The extent to which the work performed is an integral part of the employer’s business.
- Skill and initiative.
The Department of Labor has stated that the guidance provided by the final rule will help protect employees from misclassification and that the final rule recognizes that independent contractors serve an important role in our economy. The final rule provides a consistent approach for those businesses that engage or wish to engage independent contractors as well as for those who wish to work as independent contractors.
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