- A final rule on classifying independent contractors has been issued by the Department of Labor. The rule takes effect March 11, 2024.
- Like the proposed rule, the final rule considers six factors. The factors are to be considered in their totality, reflecting the “economic realities” test developed by the courts.
- The final rule differs from the proposed rule in a few ways. The control and investment factors include changes that reflect responses the agency received during the comment period.
Employers have two months to adapt to a new final rule on classifying independent contractors. The rule was issued today by the Department of Labor (DOL), will be published in the Federal Register Wednesday and takes effect March 11.
The rule will rescind one issued in the closing days of the Trump Administration in 2021.
How the Final Rule Is Like and Unlike the Proposed Rule
Like the proposed rule, which was issued in October 2022, the final rule relies on six factors to determine independent contractor status. Those factors are:
- A worker’s opportunity for profit or loss.
- Investments made by the worker and the potential employer.
- The degree of permanence of the work relationship.
- The nature and degree of control over the performance of the work.
- The extent to which the work performed is integral to the employer’s business.
- The use of the worker’s skill and initiative.
The final rule differs in some ways from the proposed version. Wage and Hour Administrator Jessica Looman highlighted two of the changes in an online press conference.
One change she cited relates to the investment factor (number 2 on the list above). Looman said that “costs to a worker that are unilaterally imposed by a potential employer are not investments indicative of an independent contractor status.”
Another change relates to the control factor (number 4 on the list above). Looman said actions taken by a potential employer “for the sole purpose of complying with specific applicable federal, state, tribal and local laws or regulations … don’t actually constitute control indicative of the employment relationship.”
The changes were influenced by the more than 55,000 comments the agency received on the proposed rule, according to the DOL.
How the Six Factors Are Considered
The six factors have no predetermined weight, and should not be considered in isolation, Looman noted. Rather, “the totality of circumstances of the working relationship must be considered.”
At the press conference, Acting Labor Secretary Julie Su said the final rule returns to “the economic realities test developed by the courts over decades.” She faulted the 2021 rule for departing from that test, saying it sewed confusion.
“The previous rule made it easier for businesses to misclassify workers and caused confusion and uncertainty as to what the standard is,” she said. “This new rule provides greater clarity and consistency in determining a worker’s status, which helps workers and businesses know when they should be covered by the Fair Labor Standards Act (FLSA).”
Looman noted that the new rule applies only to the FLSA. It does not apply to federal, state or local laws that use different standards for employee classification. For example, the Internal Revenue Code and the National Labor Relations Act also deal with classifying independent contractors but are enforced by different agencies and rely on different statutory language and judicial precedents.
This article will be updated as new information becomes available.
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