Businesses will soon find it harder to classify workers as independent contractors under the Fair Labor Standards Act (FLSA), thanks to key changes made by the U.S. Department of Labor last week, which take effect on March 11, 2024.
This new Independent Contractor rule uses the “economic realities of the working relationship” to determine whether the worker is economically dependent on the company. The following six factors now need to be analyzed:
- The opportunity for profit or loss depending on managerial skill;
- The extent to which the work performed is an integral part of the company’s business;
- Nature and degree of control of the worker;
- Investments by the worker and the company;
- Degree of permanence of the work relationship;
- The specialized skill the worker brings to the job.
The new rule returns to a “totality-of-the-circumstances analysis.” Under the rule, “the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity.”
The DOL stated that other “additional factors” may be relevant if needed to determine whether the worker clearly is in business for themself.
Employers should note that the DOL’s test applies only to the Fair Labor Standards Act (FLSA), and many states have their own tests that are applied to state-level wage and hour claims. For example, California, Illinois, New Jersey, and Massachusetts are among the states that apply a stringent “ABC test”.
Marzano Human Resources Consulting has been advising businesses on proper worker classification for a number of years now and are ready to assist in understanding this new U.S. DOL rule.
Consider reaching out for a consultation. The risks for making mistakes are just too high.