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The US DOL Finalizes Independent Contractor Rule

On Wednesday, January 10, 2024, the US Department of Labor (DOL) published in the Federal Register its final rule, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act.” The new Independent Contractor Rule takes effect on March 11, 2024, and revises how workers are classified under the Fair Labor Standards Act (FLSA) by replacing a 2021 version criticized for favoring employers.  

The new rule emphasizes a six-factor “economic realities” test, focusing on control, investment, work schedule, and profit/loss potential. Each factor in the six-factor test plays a role in determining whether a worker is truly in business for themselves or is more akin to an employee by examining the following: 

  1. Control over the Work: Does the employer dictate how the work is performed, or does the worker have autonomy and discretion? 
  2. Investment in Business Tools and Equipment: Who invests in the necessary tools and equipment for the work? 
  3. Permanence of the Work Relationship: Is the work ongoing and indefinite, or is it more project-based or temporary? 
  4. Opportunity for Profit or Loss: Does the worker’s income directly depend on their skills, effort, and market conditions? 
  5. Skill and Initiative: Does the work require specialized skills and independent initiative, or is it more routine and directed? 
  6. Integration with the Employer’s Business: Is the work performed an essential part of the employer’s core business operations? 

Next Steps 

For employers, the new rule demands careful consideration of their workforce and future hiring practices. Employers should ensure that they have implemented a consistent and established framework for assessing whether a worker is an employee or independent contractor and should ensure that this assessment is conducted before determining a worker’s status. 

Employers should also be mindful of any additional standards that must be met under other federal laws (i.e., IRS regulations and the National Labor Relations Act (NLRA)) and state laws that may have stricter classification requirements. When in doubt, the best practice is to make a worker an employee to avoid triggering claims under the FLSA and the NLRA, state wage and hour, unemployment, or workers’ compensation laws. 

Employers are also encouraged to consult with legal to ensure compliance and minimize risks associated with misclassification. 

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.