New Rule on Independent Contractor Classification Blog Post (Feb 2024)
- February 13, 2024
The United States Department of Labor (DOL) announced that beginning March 11, 2024, a new final rule will address independent contractor classifications. This new rule provides a guideline as to whether a worker is classified as an employee or an independent contractor under the Fair Labor Standards Act. The DOL repealed the previous 2021 business-friendly worker classification analysis and has since returned to the six-factor “totality of the circumstances” standard. This may create complications for businesses who rely on independent contractors as this new rule reinforces the DOL’s pro-employee view of worker classification.
This totality of the circumstances standard address six factors that are analyzed to determine whether a worker is an employee or an independent contractor. The six-factor analysis considers:
(1) the worker’s 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 the employer has over the work;
(5) the extent to which the work performed is an integral part of the potential employer’s business; and
(6) the worker’s skill and initiative.
These six factors are not an exhaustive list, and this standard allows for other relevant considerations when determining a worker’s economic dependence on the employer.
It is important to note that this rule does not impact or adopt the “ABC test” which is a common test for independent contractor classification used by many states. The ABC test requires three criteria to be satisfied in order for the worker to be classified as an independent contractor. This new rule does not adopt this three-factor test or preempt any other classification laws that protect workers, but rather revises how to analyze who is an employee or independent contractor under the Fair Labor Standards Act. Businesses must still comply with all federal, state, and local laws to make sure they provide their workers with the greatest level of protection.
Misclassification of workers can be an expensive mistake. It is important for employers to be cautious about future employment relationships, classification policies, and independent contractor agreements; and to review their current agreements to make any necessary updates.