U.S. DOL Issues Final Rule on Independent Contractor Standard of FLSA 

Situation Report | January 11, 2021

On January 6, The U.S. Department of Labor announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA). See more information here.

The Final Rule includes the following clarifications:

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
  • Identifies and explains two “core factors” as to whether a worker is economically dependent on someone else’s business or is in business for him or herself: 1) The nature and degree of control over the work; and 2) 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 above do not point to the same classification. The factors are: 1) the amount of skill required for the work; 2) the degree of permanence of the working relationship between the worker and the potential employer; and 3) whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

The rule will take effect on March 8, 2021.