On January 6, 2021, the Department of Labor issued their final rule on independent contractor status, bringing clarity to the employee vs. independent contractor standard. The final rule sharpens this inquiry into five distinct factors, instead of the five or more overlapping factors used by most courts and previously the DOL.
The Final Rule:
- Reaffirms an “economic reality” test to determine whether a worker is in business for themselves (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
- Identifies and explains two “core factors” that are most significant to the question of whether a worker is economically dependent on someone else’s business or is in business for themselves:
- The nature and degree of control over the worker’s work.
- The worker’s opportunity for profit or loss based on initiative and/or investment.
- Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is part of an integrated unit of production.
- States the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
The Final Rule will take effect on March 8, 2021, which is 60 days after it was published in the Federal Register.
Link to the DOL’s Independent Contractor page can be found here.
Link to the Final Rule published on Federal Register can be found here.