The DOL Announces Final Rule Clarifying Employee Versus Independent Contractor Status Under the FLSA

On March 8, 2021, the Final Rule clarifying the standard for employees versus independent contractors under the Fair Labor Standards Act (FLSA) goes into effect. The United States Department of Labor issued the clarifications in early January 2021.  While this Final Rule does not create a significant change in existing law, it does clarify and reiterate the use of the "economic realities" test for determining whether an individual is an independent contractor that is in business for himself or herself or an employee who is economically dependent on an employer in performing their work. 

Additionally, the Final Rule explains that the two "core factors" that are the most probative of whether an individual is, in fact, economically dependent on someone else's business or in business for himself or herself are the nature and degree of control over the individual's work and the worker's opportunity for profit or loss based on their initiative and/or investment.  

This Final Rule also identifies other factors that can be used as additional guideposts to determine if a worker should be classified as an employee or an independent contractor: 

  1. The permanency of the worker's relationship with the potential employer;
  2. The amount of skill, initiative, judgment, or foresight required for the worker's services; and 
  3. The extent of integration of the worker's services into the potential employer's business.

In addition, the Final Rule provides six fact-specific examples applying the factors that provide practical guidance regarding the application of these factors to a variety of common working situations in today's world. These include examples regarding:

  • Individuals who use their own equipment to provide services;
  • Individuals accepting assignments from companies providing app-based services linking those who need work performed with those who perform the desired work;
  • Individuals who have multiple sources of income;
  • Seasonal workers;
  • Part-time workers who work remotely; and 
  • Individuals that perform work on a freelance basis.

Finally, this Final Rule clarifies that the actual practice of the worker and potential employer is a more relevant consideration than any contractual or theoretical possibility regarding what a worker might be contractually or theoretically required to do.  For instance, a potential employer's contractual authority to supervise or discipline an individual may offer little relevance if, as a practical matter, it never exercises this authority.

Be sure you are ready for this Final Rule to come into effect on March 8, 2021.  Moye White's Employment Group is here to help with any questions you have or legal assistance you need to ensure you are in compliance.

Click here to be directed to the United States Department of Labor's website for more information. The Final Rule can also be found in the Code of Federal Regulations at 29 CFR 795.100 – 120.


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