Employee or Independent Contractor Status Clarified
Further by The U.S. Department of Labor
The federal Department of Labor (“DOL”) recently issued a new rule regarding which individuals can be properly classified as independent contractors under the Fair Labor Standards Act (the “FLSA”).
The new rule went into effect on March 11, 2024. It has been challenged in the courts, but regardless of what ultimately happens, this reflects a trend across the country, led by states like California and New Jersey, making it more difficult to legally classify workers as independent contractors.
The DOL’s New Rule: How It Works
Determining whether an individual is properly classified as an independent contractor or employee under the FLSA has always required a fact-intensive analysis. The new rule clarifies that the analysis should focus on the economic reality of the relationship between the parties.
More specifically, the new rule requires an evaluation of 6 main economic factors, including:
These factors should be analyzed in a “totality of the circumstances” view of the parties’ relationship. On balance, if the service provider depends on the company for economic opportunity, under the new rule, the relationship is more likely to be an employment relationship. And, likewise, if the service provider is more economically independent, that would suggest an independent contractor relationship.
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The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.