Employee vs. Independent Contractor: New 2024 U.S. Department of Labor Rule

On January 10, 2024, the U.S. Department of Labor implemented a final rule, effective March 11, 2024, to update their guidance on determining employee or independent contractor status under the Fair Labor Standards Act (FLSA). This rule replaces the 2021 Independent Contractor Status Under the FLSA rule (2021 IC Rule), published on January 7, 2021.

Changes from the 2021 IC Rule

The 2021 IC Rule deviated from previous guidance by designating the nature and degree of control over the work and the worker’s opportunity for profit or loss as “core factors” in the classification analysis. These “core factors” were given more weight than other factors and could together establish a worker’s independent contractor status.

In addition, the previous rule also identified three other non-core factors:

• Required skill level
• Permanence of the working relationship
• Whether the work is part of an integrated unit of production

Reinstating the Multifactor Economic Reality Test

The new rule reinstates the long-standing multifactor economic reality test used by courts since the 1940s to determine worker classification under the FLSA. This test considers whether a worker is economically dependent on a particular employer or is functioning as an independent contractor. No single factor is decisive, and there is no predetermined weight for any given factor.

Key Factors in the Employee vs. Independent Contractor Test

The final rule addresses six key factors that guide the analysis of a worker’s relationship with an employer:

1. Opportunity for profit or loss a worker might have.
2. Worker’s financial stake and resources invested.
3. The degree of permanence of the work relationship.
4. The degree of control an employer has over the worker’s tasks.
5. Whether the work the person does is essential to the employer’s business.
6. The worker’s skill and initiative.

Why This Rule Matters

The U.S. Department of Labor’s final rule is significant because the FLSA’s wage-and-hour protections apply to employees but not independent contractors. This means covered employers are not required to pay independent contractors the minimum wage or overtime. However, simply labeling a worker as an independent contractor does not exempt the worker from being protected by the FLSA.

Contact TONG LAW for Misclassification Issues

At TONG LAW, we have experience defending workers who have been misclassified as independent contractors instead of employees, ensuring they receive the protections and compensation they deserve.