Distinguishing between employees and independent contractors is vital for employers. The federal Fair Labor Standards Act (FLSA), for example, requires employers to pay a guaranteed minimum wage and overtime compensation to employees, but this does not extend to independent contractors. Despite the importance of this business relationship distinction, many employers may still find it challenging to determine whether certain workers should be classified as an employee or independent contractor under the FLSA.
On January 10, 2024, the United States Department of Labor (DOL) attempted to alleviate this confusion by releasing its long-anticipated independent contractor final rule, effective March 11, 2024. The new final rule, however, brings more workers under the FLSA’s protection by making it more difficult for employers to establish independent contractor status.
The rule specifies a six-factor totality-of-circumstances test to assess whether a worker is an employee or independent contractor, with no single factor controlling. Employers should use these factors to determine whether they need to make additional provisions for contract workers under FLSA guidelines.
