Key Takeaways
The U.S. Department of Labor’s test for determining whether a worker is an independent contractor or an employee for purposes of the federal Fair Labor Standards Act has been subject to changes in the last several years. A new final rule took effect March 11, 2024.
The Trump administration applied a more business-friendly test focused on whether workers depend on employers for work or are in business for themselves. While the old rule examined five factors, two of them: (1) the nature and degree of the employer’s control over the work, and (2) the worker’s opportunity for profit and loss were deemed to be “core” factors. The new rule focuses on whether the specific business function that the worker performs is an integral part of the business and examines six equally weighted factors.
The new rule is already facing court challenges in Texas, Georgia, Tennessee, and Louisiana. However, the suits have yet to block the rule’s implementation, so for now it stands.
What Should You Do
The new rule generally makes it harder for workers to be considered independent contractors. Review your independent contractor agreements and evaluate your current contractor versus employee classifications. Misclassifying employees as independent contractors may result in liability for back pay, withheld employee benefits, and penalties. Taking proactive measures to reduce the risk of potential misclassification is easier than fighting a legal challenge or an audit.
