On January 9, 2024, the U.S. Department of Labor released the final details of their Independent Contractor test. This test addressing when companies can classify workers as independent contractors has been hotly debated since the last proposed rule by the Trump administration was struck down by the current DOL. The new rule will take effect on March 11, 2024.
The new Independent Contractor focuses on the “economic realities of the working relationship” to determine if whether the worker is economically dependent on the company for work or if the worker is in business for themselves. The test is based on the “totality of the circumstances” and includes the following six factors:
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The opportunity for profit or loss depending on managerial skill;
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Investments by the worker and the company;
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Degree of permanence of the work relationship;
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Nature and degree of control of the worker – including whether the employer uses technological means of supervision (such as by means of a device or electronically), reserves the right supervise or discipline the worker, or places demands on a worker’s time that do not allow the worker to work for others or work when they choose;
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The extent to which the work performed is an integral part of the company’s business; and
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The skill and initiative of the worker – i.e., whether the worker possesses and uses specialized skills that they bring to the job, or is the worker dependent on training from the company to perform the work.
While the DOL identified these six factors, it is clear that no factor has a predetermined weight, and also indicated that other “additional factors” may be relevant if they are indicative of whether the worker is in business for themself.
Pending the effective date, the DOL has issued FAQs which can be found at:
https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking/faqs
With this new test, companies should carefully review whether the workers they have classified as independent contractors meet the new requirements and take any appropriate action if they believe they are misclassified.
