By Payton Hostens
Earlier this year, the U.S. Department of Labor (DOL) published a final rule that revises its guidance regarding the classification of employees and independent contractors under the Fair Labor Standards Act (FLSA).

The FLSA governs the minimum wage and overtime requirements that apply to employees but not to independent contractors. The FLSA does not define “independent contractor” or provide any framework for distinguishing an employee from an independent contractor. In January 2021, to provide such framework, the DOL published the first formal independent contractor rule.

The final rule went into effect March 11, 2024 and rescinds the January 2021 rule.

Under the final rule, six factors are considered when determining whether a worker is an independent contractor or an employee 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.

No single factor or subset of factors is dispositive. Instead, the final rule focuses on the totality of the circumstances to determine whether an individual is an independent contractor or employee. The DOL recognizes that one or more of these factors may be more relevant than others depending on the facts and circumstances and that additional factors may be relevant.

Ultimately, the final rule indicates that the outcome depends on the worker’s economic dependence on the employer—individuals who are economically dependent on the employer for work are employees, and individuals who are in business for themselves are independent contractors.

According to the DOL, the final rule is intended to “reduce confusion, improve compliance, and better protect working people.” Employers should keep in mind that the penalties for misclassifying a worker can be substantial, and simply calling a worker an independent contractor or even having a contract is not enough.

Be sure to contact an attorney who is knowledgeable about employment law and the DOL’s new rule if you intend to hire someone as an independent contractor. Contact Payton Hostens at
[email protected] with any questions.