The Department of Labor, Washington, D.C., has published a final rule, effective March 11, 2024, revising its guidance on how to analyze and classify who is an employee or independent contractor under the Fair Labor Standards Act.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” says Julie Su, Department of Labor acting secretary of labor. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
The rule restores an analysis used by courts for decades regarding the scope of factors that are analyzed to determine whether a worker is an employee or an independent contractor. According to a Department of Labor press release, the rule addresses six factors that guide the analysis of a worker’s relationship with an employer, including 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 a factor regarding the worker’s skill and initiative.
“Ensuring compliance with Department of Labor standards is a crucial aspect of running any business,” says Nathan Bowen, advocacy and public affairs vice president at the Irrigation Association, Fairfax, Virginia. “It is important for business owners to have a firm understanding of how these new rules may impact their business and to determine whether contractors are appropriately classified as such under the new rules.”
Additionally, the rule separately rescinds the 2021 Independent Contractor Rule that the department believes is “not consistent with the law and longstanding judicial precedent,” according to the release.
The rule was opposed by the National Small Business Association, Washington, D.C.
“The previous 2021 rule that DOL has rescinded was a simple, clear, and effective solution to worker classification problems,” says Todd McCracken, president and CEO of the National Small Business Association. “Unfortunately, this new far-reaching standard threatens to muddy the water and make contracting relationships difficult both for small businesses employing contractors and for the independent contractors themselves.”
