Final Rule on Employee vs. Independent Contractor Status under FLSA
On January 6, 2021, the Department of Labor (DOL) announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The objective of the rule is to streamline the identification of independent contractors in hopes of reducing worker misclassification, reducing litigation, increasing efficiency, and increasing job satisfaction and flexibility.
In the final rule, DOL reaffirms the “economic reality” test to determine whether an individual is in business for him or herself (i.e. an independent contractor) or is economically dependent on a potential employer for work (i.e. an FLSA employee).
The final rule reduces the “economic reality” test to two core factors: (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss.
Furthermore, the final rule lists three less probative factors that may be taken into consideration in determining independent contractor status: (1) the skill required to perform the work; (2) the permanence of the working relationship; and (3) whether the work performed is a part of an integrated unit of production.
These three factors should be evaluated in the context of the two core factors listed above and are not designed to outweigh those two core factors.
Finally, the rule provides examples applying the factors of the “economic reality” test.
The DOL’s rule is currently scheduled to be effective on March 8, 2021; however, in accordance with the memorandum of January 20, 2021, from the Assistant to the President and Chief of Staff, titled “Regulatory Freeze Pending Review,” the DOL has proposed to delay the rule’s effective date to May 7, 2021.
The misclassification of employees as independent contractors could have significant legal and financial repercussions.
If you have any questions or concerns regarding the classification of your workers, please contact one of our labor & employment attorneys or call 814-459-2800.
Knox Law's Labor & Employment Group:
For more information, please contact Sarah Holland.