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The Final Rule on Independent Contractor Status

The “Final Rule” on Independent Contractor Status

On January 6, 2021, the U.S. Department of Labor issued a final rule regarding independent contractors’ classification. This rule revises the interpretation of the Fair Labor Standards Act (FLSA) provision but does not include any significant changes from the DOL’s proposed rule published in September 2020. As a highly anticipated update from the Trump administration, the rule goes into effect on March 8, 2021; however, after President Biden assumes office on January 20, it is unclear how long this “final rule” will be applicable.

What the Rule Says

For employers to determine if a worker is an employee or an independent contractor, the rule uses an economic reality test with two core factors: 1) the nature and degree of control the worker has over his or her work, and 2) what opportunity for profit or loss the worker has based on his or her initiative, investment, or both. Three other factors serve as additional guidelines under the test: 1) how much skill the work requires, 2) how permanent or consistent the professional relationship is between the worker and the potential employer, and 3) and whether work provided is part of an “integrated unit of production.”

Scalia’s Explanation

“This rule brings long-needed clarity for American workers and employers,” said U.S. Secretary of Labor Eugene Scalia in the DOL press release. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”

Scalia also explained in a Fox News op-ed, “We respect the interest that millions of Americans have in being their own boss. Of course, companies can’t shirk their responsibilities under the FLSA by improperly classifying workers as something they’re not—our rule guards against that, too, and the Department will continue to vigorously enforce the law against employers who violate the FLSA, as this administration’s record reflects.”

See also: DOL Attempts Clarification of Employee vs. Subcontractor Classification

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.