The Department of Labor’s Wage and Hour Division has announced the final rule on worker classification, titled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act [FLSA],” scheduled to take effect March 11.

This rule aims to clarify worker status as either employee or independent contractor under the FLSA. It rescinds the 2021 Independent Contractor Rule, which designated “core factors” to evaluate in determining an employment relationship. The new rule considers
multiple factors equally, including:

• Opportunity for Profit or Loss Depending on Managerial Skill: This considers whether the worker can make money or lose money based on their ability to manage their work effectively, including using their judgment and business skills.
• Investments by the Worker and the Employer: This factor considers whether the worker or the employer has invested money or resources in a way that resembles a business investment or a more typical worker’s investment.
• Degree of Permanence of the Work Relationship: This considers the working relationship’s status as long term or ongoing.
• Nature and Degree of Control: This factor considers whether the potential employer determines the worker’s work schedule, directly supervises how the work is carried out, or imposes restrictions on the worker’s ability to work for other employers.
• The Extent to which the Work Performed Is an Integral Part of the Employer’s Business: This factor considers whether the specific tasks performed are integral to the overall functioning of the business.
• Skill and Initiative: This point considers whether the worker uses specialized skills to perform the work, and whether those skills resemble managing a business rather than simply performing a job.
• Additional Factors: This allows for consideration of other factors not listed that may be relevant to indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.

Defining an Independent Contractor

As used in the FLSA, the term “independent contractor” refers to workers who, as a matter of economic reality, are not economically dependent on an employer for work and are in business for themselves. Such workers play an important role in the economy and are commonly referred to by different titles, including independent contractor, self-employed worker, and freelancer. This rule is not intended to disrupt the businesses of independent contractors who are, as a matter of economic reality, in business for themselves.

Source: www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-
independent-contractor-classification-under-the-fair-labor-standards-act

When the rule was initially proposed, SHRM expressed concerns around the lack of clarity over how to evaluate a worker relationship, which could lead to ambiguity in worker classification. SHRM had advocated for retaining the 2021 classification test, emphasizing its clarity and consistency.

SHRM remains committed to providing updates and resources to help human resources (HR) professionals navigate this final rule, and it continues advocacy efforts aimed at supporting your needs and concerns. For additional summaries of this act or other HR policies, visit SHRM.org.

For more information on the Employee or Independent Contractor Classification Under the Fair Labor Standards Act, visit http://tinyurl.com/5yzz7b64.