The Department of Labor (DOL)’s Final Rule governing the standard for determining independent contractor status under the Fair Labor Standards Act (FLSA) became effective March 11, 2024. The Final Rule establishes a six-factor economic realities worker classification test and rescinds a narrower rule issued in 2021.  

The multifactor test uses a totality-of-the-circumstances analysis to determine whether a worker is an employee who is economically dependent on the employer for work or an independent contractor who is in business for themself.

The six factors include:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative.

The Final Rule clearly states that no single factor or group of factors is assigned a predetermined weight. It also allows for consideration of other factors outside of the six-factor test if relevant to determining a worker’s economic dependence on the employer.

Employers who misclassify their workers as independent contractors may be liable for back wages, including unpaid overtime, as well as liquidated damages and attorneys’ fees under the FLSA. Although there may be legal challenges to the Final Rule, employers should take this opportunity to carefully evaluate existing worker classifications in consideration of the economic realities test.

It is important to note that the Final Rule has no impact on other federal, state, or local laws that may have distinct criteria for worker classification. Employers must adhere to the relevant standards across federal, state, and local levels, ensuring compliance with the standard that provides the greatest protection to the worker.

Please contact Laura Stover, SEK’s Director of HR Advisory Services, for questions regarding independent contractor classification.