Here are five things for employers to know about the DOL’s new independent contractor rule

Yesterday, the U.S. Department of Labor finalized its rules on how to analyze and determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).

In a nutshell, the final rule applies six factors — none of which is dispositive — to analyze employee or independent contractor status under the FLSA:

1. opportunity for profit or loss depending on managerial skill;
2. investments by the worker and the potential employer;
3. degree of permanence of the work relationship;
4. nature and degree of control;
5. extent to which the work performed is an integral part of the potential employer’s business; and
6. skill and initiative.

But here are five more things employers should know about the new rule.

1. Is the “ABC” test part of the final rule?

No. The final rule does not adopt an “ABC” test, under which an individual is an independent contractor if the business satisfies all three of the following criteria:

1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

2. How does the final DOL rule impact other federal, state, and local laws that may analyze independent contractors versus employees?

It doesn’t. For example, the National Labor Relations Act has its own test. States like California and New Jersey use the ABC test.

3. Can a worker and business agree to classify the worker as an independent contractor and essentially waive employee status?

No. Just because I say the sky is red doesn’t make it so. Under the FLSA, workers are employees if they do not satisfy the DOL’s new six-part test as an independent contractor.

4. Eric, are you upset that Rage Against The Machine broke up again?

I’m gutted.

4a. How does the final rule differ from the proposed rule?

The DOL’s FAQ on the new rule highlights revisions regarding the control factor and the investment factor. For example, actions a potential employer may take for the sole purpose of complying with specific, applicable federal, state, tribal, or local law or regulation would not indicate “control.” Also, costs to a worker that a potential employer unilaterally imposes  are not “investments” indicative of independent contractor status.”

5. When is this rule effective?

This final rule takes effect on March 11, 2024.