New DOL Test for Independent Contractor Status

Following up on what we have previously noted, the DOL has released its final rule defining “independent contractor” status under the FLSA. The rule now contains a five-factor test, replacing the more employer-friendly but court-challenged rule of 2021 and claiming to clarify the classifying of workers as either employees or independent contractors. This new rule is to be effective March 1, 2024. The factors to be considered are these:

• Opportunity for profit or loss depending on managerial skill. (Clarification: just working more hours at the same rate does not establish independent status; some degree of input and control by the contractor beyond basic requirements should be present. [per #4 below]) 

• Investments by the worker and the potential employer (i.e., approximate equivalence would help to establish independent contractor status).  

• Degree of permanence of the work relationship.  

• Nature and degree of control (pertaining to both specific tasks and overall scope of the project involved).  

• Skill and initiative. 

Additional factors may also be considered if relevant (and legal). One factor that was in the original proposal and has either been dropped or assimilated into the other five is “Extent to which the work performed is an integral part of the potential employer’s business.” 

Lawsuits over the 2021 rule are still in process, and lawsuits have already been filed over this new test, so we will just have to continue to watch and see what happens. In the meantime, however, employers are advised to follow the above guidance.