Employee or Independent Contractor A Guide to the New Rule

REGULATION | 01/01/2024

Earlier this week, the U.S. Department of Labor (DOL) finalized its ruling on determining employee versus independent contractor status under the Fair Labor Standards Act (FLSA). This decision follows the proposed regulations released in October, with the final ruling largely aligning with the earlier draft. The updated regulations mark a return to a “totality-of-the-circumstances” approach, which was the standard prior to 2021.

Under the new framework, the DOL will evaluate six key factors to assess whether a worker qualifies as an employee or independent contractor. Importantly, no single factor is given more weight than another, reinforcing the comprehensive nature of the totality-of-the-circumstances analysis. These factors include:

1. Opportunities for profit or loss based on managerial skill
2. Investments made by both the worker and the potential employer
3. The degree of permanence in the working relationship
4. The level of control exercised over the worker
5. The extent to which the worker’s tasks are integral to the employer’s core business
6. The worker’s skill and initiative

This nuanced approach offers greater clarity and flexibility in determining worker classification, enabling businesses to make more informed decisions in compliance with FLSA guidelines.

Over the past 3-4 years, the classification of independent contractors has become a focal point, with significant shifts in interpretation under the last two presidential administrations. These changes have led to evolving standards on what constitutes an independent contractor under the law.

For transportation companies utilizing independent contractors, it is crucial to review the new ruling in conjunction with existing contracts and operational practices. We recommend engaging legal counsel to ensure full compliance with the updated regulations and to assess any potential risks.

Given that the new regulation is perceived to be more stringent than the pre-2021 framework, it is widely expected that business groups will challenge the DOL’s authority to implement this ruling. Proactive analysis and legal consultation will be key in navigating potential challenges and mitigating risks moving forward.

The final ruling takes effect March 11, 2024. You can find the press release here and the Federal Register notice here.