DOL Issues Final FLSA Worker Classification Rule

The U.S. Department of Labor (DOL) issued a final rule that modifies how to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA) [89 F.R. 1638, 1-10-24].

The DOL states that “economic dependence is the ultimate inquiry, meaning that a worker is an independent contractor as opposed to an employee under the [FLSA] if the worker is, as a matter of economic reality, in business for themself.” The final rule, which adopts the proposed rule with a few modifications, will be effective on March 11. The final rule also formally rescinds the 2021 rule (86 F.R. 1168, 1-7-21).

Totality of the Circumstances

The final rule adopts a totality-of-the-circumstances analysis of the economic reality test rather than using “core factors.” The final rule lists six factors to guide the assessment of the economic realities of the working relationship and to help answer the question of economic dependence under the FLSA:

1. The opportunity for profit or loss depending on managerial skill
2. Investments by the worker and the potential employer
3. Degree of permanence of the work relationship
4. Nature and degree of control
5. Extent to which the work performed is an integral part of the potential employer’s business
6. Skill and initiative

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for PayrollOrg.