Jimmy Starke
On January 10, 2024, the Department of Labor issued a final rule providing guidance on how to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The rule is effective March 11, 2024, and overrules the Department’s 2021 Independent Contractor Rule which had narrowed the circumstances under which a worker could be found to be an employee rather than independent contractor.
The FLSA is the statute that provides many key workers’ rights, such as a minimum wage and overtime guarantee. Notably, these rights are only given to employees, not independent contractors. This makes determining whether a worker is an employee a key issue for understanding their rights. The Department of Labor is responsible for enforcing the FLSA and provides guidance on its interpretation, including rules on how to determine a worker’s classification as employee or independent contractor.
The final rule formally adopts the long-standing “economic reality” test to determine whether a worker is an employee or an independent contractor. This test has long been the standard used by courts in evaluating a worker’s classification, and was used by the Department of Labor prior to its adoption of the 2021 Independent Contractor Rule, which used a narrower test. This final rule, by returning to the economic reality test, will ensure more workers are correctly classified as employees and receive the rights and protections afforded by the FLSA.
The economic reality test looks to six factors under the totality of the circumstances to determine if a worker is economically dependent on an employer for work, and therefore an employee. The factors are:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the potential employer;
- Degree of permanence of the working relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the potential employer’s business; and
- Skill and initiative.
The final rule mandates that no predetermined weight will be given to a particular factor or set of factors, ensuring that the specific circumstances of each individual worker can be analyzed under the totality of the circumstances.
Correct classification of workers is of paramount importance. The rights guaranteed by FLSA can have massive implications on a worker’s compensation, and keeping employers in compliance with FLSA can make a meaningful impact on a worker’s financial standing. By providing uniform guidance on assessing a worker’s status, the Department of Labor is reducing the risk of misclassification and denial of deserved rights, giving more workers their deserved protections.
Correia & Puth represents individuals with claims under the FLSA and under state laws protecting employees from wage theft, including in cases of misclassification. If you have concerns regarding the withholding of wages or misclassification, please contact us today.
