By Ronald Miller, J.D.
On January 6, 2021, the U.S. Department of Labor issued a final rule regarding whether a worker is an employee under the FLSA or an independent contractor.
Seeking to make it easier to identify employees covered—or not covered—under the Fair Labor Standards Act, the U.S. Department of Labor announced a Final Rule revising its interpretation of independent contractor status.
The final rule includes the following clarifications. It:
- Economic reality test. 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).
- Core factors. 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 first core factor is the nature and degree of control over the work, and the second core factor is the worker’s opportunity for profit or loss based on initiative and/or investment.
- Other factors. 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 include: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an “integrated unit of production.”
- Actual practice. Advises that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
The final rule will be published in the Federal Register on January 7, 2021 and will take effect 60 days after publication on March 8, 2021.
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