DOL Issues Final Rule on FLSA Independant Contractor Status
Fri January 8, 2021
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
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.
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.