Labor Department Issues Final Rule Clarifying Independent Contractor Status Under the Fair Labor Standards Act

The rule takes effect 60 days after publication on the Federal Register, on March 8, 2021. 

The U.S. Department of Labor this morning issued a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA).

The rule takes effect 60 days after publication on the Federal Register, on March 8, 2021. 

Although the rule is slated to take effect in early March, President-elect Biden’s Department of Labor could decide whether to allow the rule to take effect.

President-elect Biden campaigned in part on a commitment to restoring the Obama Administration’s wage-hour misclassification agenda. This would entail a more rigid test for qualifying workers as independent contractors than what President Trump’s Labor Department issued this morning.

As such, the Biden Administration’s Labor Department could reopen the rulemaking by requesting public input on whether to take independent contractor status in a different direction.

The final rule issued today considers five factors to determine whether a worker is economically dependent on an employer, and therefore an employee rather than a contractor.

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee). 
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

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