DOL Issues Final Rule on Independent Contractor Classification Test under the FLSA
In the last weeks of the Trump Administration, the Department of Labor (DOL) published its final rule for determining whether an individual is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The distinction between an employee and independent contractor is of critical importance because independent contractors are not entitled to the benefits of the FLSA, namely minimum wage and overtime.
In the Final Rule, the DOL determined that the appropriate test to be applied is the “economic realities” test. This test, as the DOL describes, “considers whether a worker is in business for himself or herself (independent contractor) or is instead economically dependent on an employer for work (employee).” In addition to the economic realities test, the DOL also outlined two “core factors” which it considers “are the most probative of whether workers are economically dependent on someone else’s business or in business for themselves.” These two core factors are “the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative, investment, or both.”
The DOL also outlined three “less probative factors” that should also be considered. These are “the amount of skill required for the work, the degree of permanence of the working relationship between the individual and the potential employer, and whether the work is part of an integrated unit of production.”
While significant, the Final Rule may be short lived. The Final Rule is set to go in effect on March 8, 2021. The delay between the announcement of the Final Rule and its effective date will provide the Biden administration an opportunity to withdraw the Final Rule if it so chooses. Accordingly, employers should monitor whether the Final Rule becomes effective and, as always, ensure they are properly classifying their employees under the FLSA, as well as other federal and state laws.