New “Final Rule” Announced by Department of Labor
Department of Labor Final Rule
If it feels like we’ve been here before, it’s not just déjà vu…we actually did talk about the differences between a “regular employee” and an “independent contractor” a few months ago. Most of the guidance we talked about back then is still relevant, but at the beginning of this year, the Department of Labor announced a new rule that is meant to be the final work on determination of whether a worker can be classified as an independent contractor versus a traditional employee.
What Happened?
On January 10, 2024, the DOL issued a press release and published a “final rule” that becomes effective on March 11, 2024. They have revised the Department’s guidance on analyzing the status of an employee under the Fair Labor Standards Act (FLSA). This new rule “rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule…that was published on January 7, 2021, and replaces it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent.”
Why?
According to the press release, the misclassification of traditional employees as independent contractors will deny the workers minimum wage and overtime pay, as well as other potential protections. They are trying to reduce the chances that employees are misclassified, while at the same time giving businesses a more consistent method of working with independent contractors.
What Has Changed?
The new “independent contractor” final rule brings back the multifactor analysis that has been used in courts for decades. Employers will need to consider all relevant factors in their determination before making a final classification of employment status.
The Six Factors of the Final Rule
The Department of Labor has published a guide of Six Factors to guide determination of employment status:
- Opportunity for profit or loss depending on managerial skill. This refers to if the worker has the chance to make or lose money directly because of actions they take on the job.
- Investments by the worker and the potential employer. Who is paying the bill for hardware, software, and other materials needed to complete the job?
- Degree of permanence of the work relationship. Is the work indefinite or project-based? Exclusive or non-exclusive of work for other employers? Continuous or sporadic in nature?
- Nature and degree of control. Who determines when and where the worker completes the tasks assigned to them? This includes reserving the right to supervise or discipline the worker for performance.
- Extent to which the work performed is an integral part of the potential employer’s business. If the work performed is considered critical or central to the employer’s main business, it would indicate the worker is an employee; if not, it indicates the worker is an independent contractor.
- Skill and initiative. Bringing specialized skills to a work relationship is not unusual, but when a worker uses those skills in connection with “business-like initiative” it is more likely the worker is an independent contractor.
As always, being in compliance is vital as non-compliance can cost your company in fines, penalties, and back-pay. If you have questions, please reach out to Southern Payroll & Bookkeeping.
Let’s talk soon. To the books!
Southern Payroll and Benefits
4159 Ringgold Rd. #207
Chattanooga, TN 37412
Monday-Friday 8 a.m.-5 p.m.
info@southerpb.website
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New “Final Rule” Announced by Department of Labor