DOL issues final rule on Independent Contractor status under FLSA

WASHINGTON, D.C., Jan. 6, 2021 — The US Department of Labor announced it is publishing the final rule establishing the test addressing whether a worker will is classified as an independent contractor or an employee under the Fair Labor Standards Act (FSLA). The final rule is expected to take effect on Mar. 8.

The final rule incorporates an economic reality test to determine whether a worker is an independent contractor or considered an employee of another contractor or business. The primary question is related to economic dependency on self or the other business and relies on these two core factors:

  • The nature and degree of control over the work
  • The worker’s opportunity for profit or loss based on initiative and/or investment

There are three other factors that can help determine how to classify a contractor:

  • 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

“These smart revisions are a win for small businesses, free enterprise and economic growth as our country looks to rebuild and recover,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs, in a statement. “We are pleased the final rule clarifies the DOL’s interpretation of independent contractor status under the Fair Labor Standards Act and promotes certainty for employers, independent contractors and employees.”

But the final rule is unlikely to fully resolve this challenging issue for employers across the country, as many states such as Wisconsin, have been working to establish their own tests for independent contractor status, and these can vary widely from state-to-state.

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