DOL Releases Final Rule on Independent Contractors
The Department of Labor has released its revised final rule for employers to follow regarding when a worker is considered an independent contractor for FLSA purposes. The independent contractor “test” has always been a rather nebulous amalgamation of factors employers are required to consider when making a determination of employment status for a particular individual. In an attempt to clarify the considerable confusion surrounding independent contractor determinations, the DOL created a proposed rule in 2020. After the comment period, the DOL has decided to highlight two factors in an Independent Contractor analysis as the most determinative of employment status:
The Nature and Degree of Employer’s Control Over the Work Performed:
- This factor deals with which entity exerts dominant control over the details of the individual’s work. In all scenarios, the employer determines what work needs to be done, but the determination of an independent contractor or an employee rests largely upon how that work will be completed. Who decides the work schedule? Who selects what other workers are on the project? Can the worker accept work for a different employer while working for the current employer? These are a few questions that can determine whether the worker or the employer is truly in control of the project.
Both the employer and the worker’s contributions to the job should be considered and weighed against each other.
The Opportunity For Profit or Loss:
- This factor deals with the worker’s ability to earn profits or loss based on business acumen (for example, in the hiring of assistants or the purchasing of materials). This also deals with the ability (or inability) of the worker to influence their earnings other than by working more/less hours.
However, should the weight of these factors not be dispositive in an independent contractor determination, certain other factors will be considered:This factor deals with the worker’s ability to earn profits or loss based on business acumen (for example, in the hiring of assistants or the purchasing of materials). This also deals with the ability (or inability) of the worker to influence their earnings other than by working more/less hours.
- “Skill Required”- Whether or not the work requires specialized knowledge/training
- “Degree of Permanence”- Whether or not the worker and the employer maintain a working relationship after the work is finished
- “Integrated Unit”- Whether or not the work can be separated from the rest of the employer’s production process
Employers should understand that, although the DOL has modified the calculations of an Independent Contractor determination, the spirit is unchanged: if, in the totality of the circumstances, a worker has the appearance and functionality of an employee, then that worker will not be considered an Independent Contractor.
You can read the entire Final Rule HERE.
Heather Reynolds, ESQ