Everything Old is New Again – the DOL’s “New” Standards for Determining Independent Contractor Status Under the FLSA

Everything Old is New Again – the DOL’s “New” Standards for Determining Independent Contractor Status Under the FLSA

In its now seemingly endless ping-ponging over the proper considerations for independent contractor status – depending upon which political party is in the White House  – the U.S. Department of Labor (“DOL”) last month announced its new final rule.  This rule revises the test for determining whether workers are properly considered to be employees or independent contractors under the Fair Labor Standards Act (“FLSA”).

The “new” rule returns us back to a slightly modified version of the “economic realities” test that the DOL had used before issuing its March 8, 2021 Independent Contractor Rule: a rule widely  considered to give employers greater flexibility in determining the appropriate status of its workers.

The new final rule becomes effective March 11, 2024, and as mentioned above, rescinds the DOL’s March 8, 2021 rule, and reinstates the totality of the circumstances approach to the “economic realities” test. This test’s ultimate inquiry remains whether the “economic reality” is that the worker is in business for themselves or is economically dependent on the potential employer. But where the 2021 Independent Contractor Rule assigned greater weight to two “core factors” (control and opportunity for profit or loss), the final rule returns to an approach where all six factors are relevant to the analysis, i.e., the totality of the circumstances.

The six factors are:

• The degree to which the employer controls how the work is done.
• The worker’s opportunity for profit or loss depending upon his/her managerial skill.
• The amount of skill and initiative required for the work.
• The degree of permanence of the working relationship.
• The worker’s investment in equipment or materials required for the task relative to the employer’s investment.
• The extent to which the service rendered is an integral part of the employer’s business.

Employers utilizing independent contractors should review those relationships in light of the “new” DOL standards and discuss with their employment counsel whether reclassification may be in order, or a modification of the work arrangements are needed for compliance.