UPDATED: The U.S. Department of Labor Wage and Hour Division has announced that the final rule on independent contractor status' effective date is delayed until May 7, 2021 “to allow the Department to review issues of law, policy, and fact raised by the rule before it takes effect.”
On January 6, 2021, the U.S. Department of Labor finalized its rule concerning the classification of workers as employees or independent contractors under the Fair Labor Standards Act (FLSA), which is scheduled to be published on January 7, 2021. This rule will be effective 60 days after the publication, on March 8, 2021.
The finalized rule does the following:
- Reaffirms that independent contractors are not employees under the FLSA and are not entitled to minimum wage or overtime pay under the Act.
- Specifies that economic dependence is the ultimate inquiry in determining worker status. In other words, an individual is an employee under the FLSA "if, as a matter of economic reality, the individual is economically dependent on that employer for work." On the other hand, an individual is an independent contractor "if the individual is, as a matter of economic reality, in business for him- or herself."
- Identifies non-exhaustive and non-dispositive facts in in determining whether a worker is economically dependent on the potential employer:
- Two "core factors" that typically will carry the most weight:
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Core Factors
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Weight in favor independent contractor status
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Weight in favor employee status
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The nature and degree of control over the work.
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The individual exercises substantial control over key aspects of the performance of work (e.g., setting schedule, selecting projects, being able to work for others).
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The potential employer exercises substantial control over key aspects of the work, such as controlling the individual’s schedule or workload and or requiring the individual to work exclusively for the potential employer.
However, requiring the individual to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms typical of business relationship (as opposed to employment relationships) does not constitute control for the purposes of employee classification.
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The individual’s opportunity for profit or loss.
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The individual can earn profits or incur losses with his or her exercise of initiative (e.g., managerial skill or business acumen or judgment) or management of his or her investment or capital expenditure.
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The individual is unable to affect his or her earnings or is only able to do so by working more hours or faster.
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- Three other factors to be considered, though they carry less weight than the core factors:
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Other Factors
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Weight in favor independent contractor status
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Weight in favor employee status
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The amount of skill required for the work
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The work at issue requires specialized training or skill that the potential employer does not provide.
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The work at issue requires no specialized training or skill and/or the individual is dependent upon the potential employer to equip him or her with any skills or training necessary to perform the job.
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The degree of performance of the working relationship between the individual and the potential employer
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The work relationship is by design definite in duration or sporadic, which may include regularly occurring fixed periods of work, but the seasonal nature of work by itself would not indicate independent contractor classification.
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The work relationship is by design indefinite in duration or continuous.
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Whether the work is part of an integrated unit of production
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The individual’s work is segregable from the potential employer’s production process.
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The individual’s work is a component of the potential employer’s integrated production process for a good or service.
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- Advises that in evaluating the individual’s economic dependence on the potential employer, the actual practice of the involved parties is more relevant than what may be contractually or theoretically possible.
- Provides fact-specific examples demonstrating how the factors to determine economic dependence may be analyzed.
