New Employee vs Independent Contractor Rule: Key Changes Explained
Article Highlights:
- New U.S. Department of Labor Rule
- Rescinded Prior Rule
- Six-Factor Test Overview
On Jan. 9, 2024, the U.S. Department of Labor (DOL) unveiled its final rule regarding employee and independent contractor classification under the federal Fair Labor Standards Act (FLSA). Effective March 11, 2024, this rule replaces the 2021 independent contractor rule issued under former President Donald Trump. Let's explore the key changes and what they mean for businesses and workers.
Overview of the Six-Factor Test for Employee vs Independent Contractor:
1. Opportunity for Profit or Loss Depending on Managerial Skill: This factor examines whether a worker has the opportunity to negotiate fees, accept or decline jobs, and engage in business expansion efforts.
2. Investment by the Worker and the Employer: Considers whether the worker's investments are capital or entrepreneurial in nature and compares them relative to the potential employer's investments.
3. Degree of Permanence of the Work Relationship: Weighs in favor of employee status if the relationship is indefinite or continuous and independent contractor status if it's definite or project-based.
4. Nature and Degree of Control: Evaluates the potential employer's control over work performance and economic aspects of the relationship.
5. Extent to Which the Work Performed Is an Integral Part of the Employer’s Business: Determines whether the work performed is critical to the employer's principal business.
6. Skill and Initiative: Considers the worker's specialized skills and business-like initiative.
Important Note:
The DOL's criteria primarily determine eligibility for wage and hourly protections under the FLSA, while the IRS uses a different criteria for tax purposes.
This new rule aims to provide clarity and consistency for businesses. However, it could lead to increased litigation, particularly in industries like transportation and logistics.
If you have questions or need assistance navigating these changes, please don't hesitate to contact us for support.