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EB Flash: DOL Finalizes Rule Clarifying Independent Contractor Status

Employee Benefits Alert

The Department of Labor (DOL) has issued final regulations to clarify the status of independent contractors under the Fair Labor Standards Act (FLSA). DOL says the rules are generally applicable to all industries and were finalized "largely as proposed" in September.

As summarized by DOL, the rulemaking includes the following clarifications:

  • Reaffirms an "economic reality" test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
  • Identifies and explains two "core factors" that are most probative to the question of whether a worker is economically dependent on someone else's business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker's opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. 
  • Provides six fact-specific examples applying the factors.

The final regulations are viewed by many as "pro-employer" by providing businesses with greater flexibility to classify their workers as independent contractors rather than regular employees covered by federal minimum wage and overtime laws. The rules are also a sharp contrast with the trend in many states to apply the more restrictive ABC Test, which provides a much broader standard in classifying workers as employees. Several unions have already asked the incoming Biden administration to amend these final regulations.

The rules were published in the Federal Register today and are set to take effect on March 8, 2021.

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