The U.S. Department of Labor recently announced a final rule to help employers decide on whether a worker is an employee or independent contractor under the Fair Labor Standards Act. The new rule will take effect on March 11, 2024. The final rule will largely affect such industries as home health care, construction, trucking, and ride-share and delivery services.
Six-Factor Test
The final rule uses a six-factor totality-of-the-circumstances test to resolve any disputes as to whether a worker is an employee or an independent contractor.
According to this test, employers are to consider the following factors to resolve the employee/contractor debate:
- Any opportunity for profit or loss a worker might have,
- The financial stake and nature of any resources a worker has invested in the work,
- The degree of permanence of the work relationship,
- The degree of control an employer has over the person’s work,
- Whether the work the person does is essential to the employer’s business, and
- Factors regarding the worker’s skill and initiative.
The final rule essentially rescinds the 2021 Independent Contractor Rule that was adopted by the Trump Administration. According to the Labor Department, the new rule restores the multifactor analysis used by courts for decades prior to the 2021 rule. The Department also believes the new rule will help ensure that employers analyze all relevant factors in determining if a worker is an employee or an independent contractor.
Impact of the Final Rule
The final rule is designed to help better protect employees. This protection will come, in theory, by the new rule reducing an employer’s efforts to avoid laws that protect employees by classifying employees as contractors.
The Labor Department asserts that employers often misclassify employees as independent contractors in an attempt to deprive workers of full and fair compensation, including:
- Overtime,
- Health care benefits,
- Workers’ compensation coverage,
- Protection against discrimination, and
- Entitlement to social security.
The final rule’s aim is to deter this type of deprivation. Commentators believe the rule will have the greatest impact on such industries as home health care, construction, trucking, and ride-share and delivery services.
Commentators also believe there might be some pushback from a company’s willingness to follow the new rule, and therefore, some litigation regarding the rule’s enforcement.
Questions? Not sure whether your worker is an employee or independent contractor?
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