Advocacy News – March 13, 2024
The US Department of Labor’s (DOL) final rule on employee or independent contractor classification under the Fair Labor Standards Act (FLSA) went into effect March 11.
Why it matters: The DOL’s new rule may result in more workers, including those desiring independent contractor status, being classified as employees under the FLSA – subjecting them to minimum wage, overtime pay, record keeping and child labor standards. The increased number of factors and absence of a controlling factor may lead to greater ambiguity and variability in determining worker status, potentially increasing litigation and providing the DOL with more enforcement discretion.
Zooming in: The DOL’s new rule is an economic reality – or totality-of-the-circumstances – test. It uses multiple factors to see if an employment relationship exists under the FLSA. The DOL says the “goal of the test is to decide if the worker is economically dependent on the employer for work or is instead in business for themself. All factors should be considered. No single factor determines a worker’s status, and no one factor or combination of factors are more important than the other factors. Instead, the totality of the circumstances of the working relationship should be considered.”
The test takes into consideration: (1) the worker’s opportunity for profit or loss; (2) investments by the parties; (3) the degree of permanence in the workplace relationship; (4) the nature and degree of control over the work; (5) whether the work is an integral part of the employer’s business; and (6) the worker’s skill and initiative.
Companies using independent contractors are advised to consult with legal counsel to determine how to proceed.
Go deeper: Check out the DOL’s fact sheet. We’d also encourage you to review the compliance article from our friends at the Foster Swift law firm.
What’s next: Register for our upcoming April 3 webinar, presented by MI Chamber member and partners at Bodman, to learn more about this rule and how to avoid the pitfalls of misclassifying workers.