DOL Issues Final Rule on FLSA Independant Contractor Status

Fri January 8, 2021

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On Jan. 6, 2021, the U.S. Department of Labor (DOL) issued a final rule that
clarifies how to determine whether a worker is an employee who is protected under the Fair Labor Standards Act (FLSA) or an independent contractor who is exempt from it. The final rule becomes effective March 8, 2021.

“Economic Reality” Test Reaffirmed
The  final  rule  reaffirms  an  existing  test  under  which  an  employer  must consider  
whether,  as  a  matter  of  economic  reality,  a  particular  worker  is dependent  on  that  
employer,  as  opposed  to  being  in  business  for  him-  or herself. Two “core factors” that are
most significant in this analysis are:
    The nature and degree of control over the work; and
    The worker’s opportunity for profit or loss based on initiative and/or
investment

Other relevant factors to consider, particularly when the two above do not
point to the same classification, include:
    The amount of skill required for the work;
    The degree of permanence of the working relationship between the
worker and the potential employer; and

     Whether the work is part of an integrated unit of production.

For these analyses, the final rule emphasizes that actual practices are more
relevant than what may be contractually or theoretically possible.

Employer Impact
The FLSA requires employers to meet wage, work hour and record keeping
requirements for each of their employees. If a worker meets the standards
for independent contractor status, those requirements would not apply.
Employers should become familiar with the new final rule.