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NCA Alert: DOL Releases Final Independent Contractor Rule

The Department of Labor (DOL) yesterday released a final rule amending the Fair Labor Standards Act (FLSA) to clarify when workers should be classified as independent contractors or employees, who can receive full minimum wage and overtime, and other protections under the FLSA.

The rule implements the use of a six-factor “economic realities test” that will grant equal consideration to each factor to determine whether a worker should be classified as an employee or an independent contractor:

  1. Opportunity for profit or loss depending on managerial skill.
  2. Investments by the worker and the employer. 
  3. Degree of permanence of the work relationship.
  4. Nature and degree of the individual’s control over their work.
  5. Degree to which an individual’s work is essential to an employer’s business.
  6. Worker’s skill and initiative. 

In addition to the six explicit factors, DOL also states that it will consider other factors that might “… indicate whether the worker is in business for themselves, as opposed to being economically dependent on a potential employer for work.” This vaguely worded provision would provide DOL with additional authority to seek various types of work as employment for the purposes of the FLSA. 

As a result of DOL’s final rule, it will be more difficult for businesses to classify workers as independent contractors. Employees qualify for higher minimum wage and overtime pay protections than independent contractors. 

The final rule reaffirms the Obama-era worker classifications, using the same broad rules to classify many workers as full employees. During the Trump administration, DOL issued a final rule regarding the classification of independent contractors that was more abbreviated and employer friendly. That rule used an interpretation of the economic realities test that primarily considered whether the worker operates their own business or is economically dependent on the hiring entity. President Biden’s rule puts more emphasis on factors that almost universally favor employee status, classifying workers who are “economically dependent” on a company as employees.

The rule is scheduled to officially publish in the Federal Register on Wednesday and will go into effect on March 11.

Reactions to the rule:

Contact NCA President & CEO Joe Trauger at [email protected] if you have any questions or comments.