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January 19, 2024
Us Department Of Labor Publishes Final Rule For Determining Worker Classification Under The Fair Labor Standards Act
On January 9, 2024, the United States Department of Labor published its Final Rule revising its previous guidance on how to determine who is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The new rule rescinds the January 2021 rule on the subject and becomes effective March 11, 2024.
The new rule is designed to be “more consistent with the FLSA as interpreted by longstanding judicial precedent,” according to the Department of Labor’s announcement. The new rule does not impact other laws (federal, state and/or local) that use different standards for employee classification, such as the “ABC” test used in New Jersey or the “control” test used by the IRS. The new rule uses the “economic reality” test for classifying workers. Under the economic reality test, a worker is an “employee,” and not an “independent contractor,” if they are “economically dependent on an employer for work.” To make this determination, the new rule applies six factors to identify worker status. These factors are:
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 of degree and control;
5) extent to which the work performed is an integral part of the potential employer’s business; and,
6) skill and initiative.
The factors will be applied using a “totality of the circumstances” standard. No single factor or group of factors is assigned any predetermined weight. Depending on a particular case, some factors may be more important in the determination than others. Thus, each situation will arguably be viewed independently, weighing those factors most relevant in the particular circumstances.
If a worker is identified as an “employee” under the FLSA, the employee and employer cannot agree to waive FLSA-protected rights, including minimum wage and overtime pay. Moreover, if an employee is incorrectly classified as an “independent contractor,” the employer could be subject to the following: unpaid wages owed to the employee, liquidated damages in an amount equal to back wages, civil money penalties and, if a claim is made by a represented individual (or group of individuals), attorneys’ fees associated with the litigation.
Employers who include “independent contractors” among their staff should have an audit performed by legal employment counsel to determine compliance with the new rule. Informed counsel can review an employer’s particular situation to assist in insuring compliance with the rule and avoid the potentially drastic consequences presented by non-compliance with wage and hour laws.
Hill Wallack employment law attorneys can provide the required review, analysis and counseling. For questions, please contact:
David J. Truelove, Esquire
dtruelove@hillwallack.com
(267) 759-2079
Suzanne M. Marasco, Esquire
smarasco@hillwallack.com
(609) 734-6351
Susan L. Swatski, Esquire
sswatski@hillwallack.com
(609) 734-6318
