Client Alert: New Rules for Independent Contractors

On January 9, 2024, the U.S. Department of Labor revised the rules for classifying workers as “employees” or “independent contractors”. The final rule is effective March 11, 2024.

The rule adopts a new six-factor test to analyze employee or independent contractor status under the Fair Labor Standards Act :

1. 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. The extent to which the work performed is an “integral” part of the potential employer’s business; and
6. Skill and initiative.

How is the New Rule Different from the Prior Rule?

The new rule returns to a totality-of-the-circumstances economic reality test, where no single factor or group of factors is assigned any predetermined weight.   It considers six factors (instead of five), including the investments made by the worker and the employer.  The new rule provides analysis of the control factor, including a discussion of how supervision, scheduling, and the ability to work for others should be considered when analyzing the degree of control over a worker, and returns to the DOL’s longstanding consideration of whether the work is integral to the employer’s business.

What Should You Do Now?

Employers should review the new rule carefully and evaluate their classification policies and practices. If you are unsure whether your current classification policies and practices pass the new six-factor test, please feel free to give Will Cherry or Jennifer Weaver a call.