Compliance News | January 26, 2024
The DOL’s Wage and Hour Division has issued a final rule on “Employee or Independent Contractor Status Under the Fair Labor Standards Act.” The new rule addresses how to determine whether a worker is properly classified as an employee or a contractor under the Fair Labor Standards Act (FLSA).
This distinction has a significant impact in determining not only whether workers are afforded certain protections under the FLSA, but also on businesses that must navigate compliance with another change in these regulations.
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The new rule rescinds the prior rule issued in 2021, “Independent Contractor Status Under the Fair Labor Standards Act.” The DOL states that the new rule replaces the prior regulation with an analysis that is more consistent with judicial precedent and the FLSA’s text and purposes.
The new rule will become effective on March 11, 2024.
Under the new final rule, which was published in the January 10, 2024 Federal Register, the DOL will return to the “totality of the circumstances” approach previously employed under the “economic reality test” in determining whether a worker should be considered an employee or independent contractor. The test will determine whether the worker is economically dependent on the employer for work (and is thus an employee) or is in business for themselves (and is therefore considered an independent contractor).
Six, largely familiar factors will be considered as part of this test, including:
All six factors will be considered as part of the analysis, rather than a focus on certain “core factors” among the group, as had been the case under the 2021 rule.
If, after applying these factors, a worker is determined to be an employee, the relevant protections afforded under the FLSA, including minimum wage and overtime, would apply. If deemed an independent contractor, the FLSA would not apply.
Lawsuits are anticipated challenging the new rule that may impact the March 11, 2024 effective date. Segal will continue to monitor these developments and provide updates.
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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.