Department of Labor Issues Independent Contractor Final Rule

On January 10, the Department of Labor’s (DOL) Wage and Hour Division (WHD) published the highly anticipated rule modifying the test for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The final rule rescinds the current “core factors” method for determining independent contractor status under the FLSA and implements a return to a “totality-of-the-circumstance analysis.”

Under the final rule, the method of determining worker classification will use a totality-of-the-circumstance analysis of multiple factors in an economic reality test, including the following six factors.

• The extent to which the work is integral to the employer’s business.
• The worker’s opportunity for profit or loss depending on managerial skill.
• The investments made by the worker and the employer.
• The worker’s use of skill and initiative.
• The permanency of the work relationship.
• The degree of control exercised or retained by the employer.

Under the final rule, any particular factor could be determinative in establishing a worker’s classification, and additional undefined factors may be relevant in the analysis as well. The final rule is therefore a significant departure from the previous rule finalized in 2021, under which two core factors primarily guided worker classification determinations.

The WHD has established March 11, 2024, as the effective date of this new rule, meaning institutions will need to be in compliance by then. The rule is likely to be challenged in federal court by business groups, and legislators in the U.S. House of Representatives and Senate have indicated they will introduce resolutions of disapproval under the Congressional Review Act in an attempt to nullify the final regulation. CUPA-HR will keep members apprised of any new updates as it relates to the status of this final rule.