On January 10, 2024, the Department of Labor (“DOL”) published a new rule on classifying workers as independent contractors. The new rule, which replaces a rule issued in 2021, and very closely resembles the pre-2021 rule. The new rule became effective March 11, 2024 and analyzes 6 primary factors:
The worker’s opportunity for profit or loss depending on managerial skill;
Investments by the worker and the hiring party;
Degree of permanence of the work relationship;
Nature and degree of the hiring party’s control;
Extent to which the work performed is an integral part of the hiring party’s business; and
The worker’s skill and initiative.
The test underlying the rule seeks to determine the “economic realities” of a worker relationship, based on the totality of that specific worker’s circumstances. Ultimately, for a worker to be an independent contractor under the rule, the economic realities must demonstrate that the worker is not economically dependent upon the hiring party in a way that closely resembles to how an employee is economically dependent upon an employer.
Although the DOL’s rule applies to the Fair Labor Standards Act (“FLSA”), a hiring party must comply with ALL such rules applicable to each of its worker relationships. For example, the IRS applies a rule that includes a safe harbor for workers who are commonly treated as independent contractors based on industry standards; whereas the North Carolina Department of Employee Security applies a rule that includes no such safe harbor. In effect, a single North Carolina worker could be deemed an independent contractor for the purposes of federal taxes and deemed an employee for the purposes of state unemployment insurance.
Additionally, safe harbors are generally not available to employers that intentionally misclassify employees as independent contractors. In fact, employees cannot consent to being classified as independent contractors or to waiving certain legal protections that accompany being properly classified as employees. Ultimately, hiring parties are responsible for analyzing worker relationships under the various applicable rules and properly classifying the workers accordingly.
This summary is for general informational purposes only. Circumstances might vary. Consult with an attorney for legal advice on your specific rights or responsibilities.
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For frequently asked questions on the DOL’s new independent contractor rule:
Frequently Asked Questions - Final Rule: Employee or Independent Contractor Classification Under the FLSA | U.S. Department of Labor (dol.gov)
For detailed explanations and examples of the DOL’s new 6-factor independent contractor test: Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov)
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