The U.S. Department of Labor published a final rule, effective March 11, 2024, revising the Department’s guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
Worker classification has been a hot topic, as it has long been a question if workers within the gig economy are entitled to employee benefits – including workers’ compensation coverage.
This new rule provides guidance on proper classification and seeks to combat employee misclassification. This final rule rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule (2021 IC Rule), that 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 new “independent contractor” rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.
The rule addresses six factors that guide the analysis of a worker’s relationship with an employer, including:
- Any opportunity for profit or loss a worker might have
- The financial stake and nature of any resources a worker has invested in the work
- The degree of permanence of the work relationship
- The degree of control an employer has over the person’s work
- Whether the work the person does is essential to the employer’s business
- A factor regarding the worker’s skill and initiative
This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.
