Fair Labor Standards Act Update and the Independent Contractor Final Rule

On January 10, 2024, the U.S. Department of Labor published a final rule, effective March 11, 2024, revising the Department’s guidance on analyzing who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). This final rule rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule (2021 IC Rule), which was published on January 7, 2021, and replaces it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent.

The misclassification of employees as independent contractors may deny workers minimum wage, overtime pay, and other protections. Misclassification is a serious issue that denies employees’ rights and protections under federal labor laws and hurts the economy. This final rule will reduce the risk of employees being misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.

Under the new rule, employers would use a totality-of-the-circumstances analysis, in which none of the factors carry greater weight.

The new test includes six factors:

1. The degree to which the employer controls how the work is done.
2. The worker’s opportunity for profit or loss.
3. The amount of skill and initiative required for the work.
4. The degree of permanence of the working relationship.
5. The worker’s investment in equipment or materials required for the task.
6. The extent to which the service rendered is an integral part of the employer’s business.

The Small Entity Compliance Guide will assist small businesses in complying with the final rule. This guide includes an overview of the rule, the six factors of the economic reality test, common questions, and additional resources.

Source: https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking.

The Forde Firm offers a best practice advisory package to discuss classifying employees as well as a payroll review tool to help ensure that your payroll and contractor classifications and documentation are operating correctly.

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