On January 9, 2024, the Department of Labor (DOL) unveiled its new independent contractor rule, marking a significant development for employers and how they classify a worker as an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The new rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act, takes effect on March 11, 2024.
The focus of the new rule revolves around the economic realities of the relationship between the employer and the worker. Unlike the current rule, which relies on specific factors, the new rule engages in a more nuanced evaluation of the employment relationship, considering the totality of circumstances rather than a checklist of “core factors.”
The new rule establishes a nonexhaustive six-factor evaluation that considers: 1) opportunity for profit or loss depending on managerial skill; 2) investments by the worker and the potential employer; 3) the degree of permanence of the work relationship; 4) the nature and degree of control; 5) the extent to which the work performed is an integral part of the potential employer’s business; and 6) skill and initiative. This shift also acknowledges that control is a relevant factor but no longer considers it in isolation. Instead, it integrates control as part of the broader assessment – creating a more holistic understanding of the employment relationship and recognizing that factors like the degree of supervision and the nature of the work can vary across different industries and occupations.
Notably, the DOL emphasized that the new rule does not adopt an “ABC” worker classification test like the one in California. The ABC test permits an independent contractor relationship only if all three factors in a three-factor test are satisfied.
Employers should proactively review their current classification practices in light of the updated guidelines. Conducting a thorough assessment of the nature of the work relationship, including the degree of control exerted by both parties and the economic independence of the worker, is essential. The new rule underscores the importance of clear contractual agreements outlining the terms of engagement. Given the timeline, employers should revisit and, if necessary, revise existing contracts to reflect the nuanced considerations emphasized by the DOL.
If you or your business needs assistance in evaluating the impact of the new rule on your workforce, please contact Gunster’s Labor & Employment group.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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