KNOW YOUR RIGHTS
DEPARTMENT OF LABOR
Independent Contractor Rule
Worker classification directly impacts employee eligibility for benefits , legal protections ( such as minimum wage and overtime rights ), and taxation . Employee misclassification is a growing concern for the U . S . Department of Labor ( DOL ). While several tests exist to determine whether a worker is an employee or an independent contractor , the DOL uses the economic reality test ( ERT ), which examines whether a worker is economically dependent on the employer or engaged in business for themselves . Under this test , if a worker is economically dependent on the employer , they are an employee and should be protected by employment laws , including the Fair Labor Standards Act ( FLSA ) and the Family and Medical Leave Act ( FMLA ).
The DOL released a final rule , effective March 11 , 2024 , revising the agency ’ s guidance on how to analyze who is an employee or independent contractor under the FLSA . This final rule rescinds the 2021 Independent Contractor Rule .
WORKER CLASSIFICATION
• Worker classification is the process of determining whether an employment relationship exists .
• Several tests exist to determine whether a worker is an employee or an independent contractor .
• The DOL favors the economic reality test to classify workers .
IMPACT ON EMPLOYERS
• In general , employment , labor , and related tax laws apply only to employees and do not apply to independent contractors .
• Misclassified employees often are denied benefits and protections they are entitled to by law .
• Employers that misclassify employees can be liable for expensive fines and litigation .
BACKGROUND
Under the FLSA , employees are entitled to minimum wage , overtime pay , and other benefits . Independent contractors are not entitled to these protections and benefits . According to the DOL , the final rule will reduce the risk of employees being misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves .
2021 INDEPENDENT CONTRACTOR RULE
The DOL published the 2021 Independent Contractor Rule on January 7 , 2021 . The 2021 rule reasserted the ERT as the DOL ’ s preferred method to determine whether a worker should be classified as an employee or independent contractor under the FLSA . In doing so , the 2021 rule focused on two core factors : the nature and degree of the worker ’ s control over the work and the worker ’ s opportunity for profit and loss based on initiative and / or investment . These factors carried more weight in determining the status of independent contractors .
2024 FINAL RULE
The final rule rescinds the 2021 Independent Contractor Rule and returns to the pre-2021 rule precedent .
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