DOL Announces Final Rule for Independent Contractor Status Under FLSA

Career

Written By ESR News Blog Editor Thomas Ahearn

On January 6, 2021, the U.S. Department of Labor (DOL) announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA), according to a DOL news release. The rule will take effect on March 8, 2021, 60 days after publication on the Federal Register.

“This rule brings long-needed clarity for American workers and employers. Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act,” Secretary of Labor Eugene Scalia stated in the news release. In the final rule, the DOL:

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself: The nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

“The rule we announced today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers. The real-life examples included in the rule provide even greater clarity for the workforce,” Wage and Hour Division (WHD) Administrator Cheryl Stanton stated in the news release.

On September 22, 2020, the DOL announced a proposed rule addressing how to determine whether a worker is an employee under the FLSA, which establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in governments.

The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights. To learn more about the DOL, visit www.dol.gov.

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