Earlier this month, the Department of Labor (DOL) finally published its long-awaited final rule on independent contractor classifications. The announcement unveiled a six-factor test for determining if a worker should be classified as an independent contractor or employee. The final rule is effective March 11, 2024.
The DOL’s 2024 Independent Contractor Final Rule provides the following six-factor test:
- Opportunity for Profit or Loss Depending on Managerial Skill: Does the worker have opportunity for profit or loss based on their own business judgment?
- Investments by the Worker and the Potential Employer: Is the worker making capital or entrepreneurial investments in their work?
- Degree of Permanence of the Work Relationship: Is the work relationship indefinite, continuous, or exclusive of work for other employers?
- Nature and Degree of Control: Does the employer have control, including reserved control, over the work and how it is performed?
- Extent to Which the Work Performed Is an Integral Part of the Potential Employer’s Business: Is the work being done integral to the employer’s business?
- Skill and Initiative: Does the worker possess special skills or rely on training from the employer?
Unlike the 2021 rule which held two “core” factors above three “less probative” factors, the 2024 final rule makes it clear no one factor is more important than any other. The totality of the circumstances are reviewed in order for independent contractor status to be determined. In other words, all six factors are considered when deciding if a worker is actually an independent contractor.
How else is the 2024 rule different from the 2021 rule?
- There are six factors instead of five. (Welcome back to the party: “Investments by the Worker and the Potential Employer!”)
- There is additional context and analysis provided for certain factors.
- There is no longer a provision minimizing the relevance of an employer’s reserved but unexercised right to control a worker.
While the courts may look to the DOL’s final rule for guidance to determine status under the Fair Labor Standards Act, it does not have any impact on state or local laws that use different tests or standards for classifying employees as an employee versus an independent contractor.
Misclassified workers can pose significant liability to employers. It is best practice to evaluate any independent contractor agreements and the reality of the relationship to confirm whether current independent contractors are properly classified under applicable law.
The Bricker Graydon Labor & Employment team is here to help. Contact our team today to answer the question of whether to be or not to be an employee.