The DOL Clarifies Employee vs. Independent Contractor Under the FLSA

Effective March 11, 2024, the U.S. Department of Labor’s (DOL) assessment to define an “employee” and an “independent contractor” under the Fair Labor Standards Act will change. The move comes about as the agency attempts to reign in the issue of misclassifying employees as independent contractors. According to the DOL, the misclassification leads to a loss of workers’ income, allows employers to undermine their competition, and negatively impacts the economy. 

The final rule sets aside the DOL’s 2021 independent contractor rule which it believes is inconsistent with the law and longstanding judicial precedent. 

Under the new rule, the agency will return to using the following six-factor test to determine whether a worker should be classified as an independent contractor or an employee:

  • Opportunity for profit or loss depending on managerial skill
    • Did the worker buy insurance for the job? Did they perform management duties? Did the worker perform their job efficiently enough to earn the employer a profit? Did they suffer a monetary loss of investment?
  • Investments by the worker and the employer
    • How much did the worker invest in facilities and equipment? Were they reimbursed for any purchases needed to perform their duties? Does the worker use their own tools and equipment?
  • Degree of permanence of the work relationship
    • How long has the worker worked for the same employer?
  • Nature and degree of control by the employer
    • Who decides the workers’ hours, and who oversees quality control? Who sets the pay rate? Does the worker work for any other company?
  • Whether the work performed is an integral part of the employer’s business
    • Does the worker play a key role in the business by doing the type of work than an employer would do for their customers or clients? Does the worker supervise any of the employer’s employees?
  • Initiative and skill
    • Do the worker’s duties require little training? Do they independently advertise? Does the worker have their own website?

For more information, read more about the rule change on the DOL’s website here.