Do You Still Need to Know Your ABCs? Not Under the DOL’s New Rule on Employees and Independent Contractors

On January 10, 2024, the Department of Labor (DOL) published the long-awaited final rule titled, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act” (the Rule), which provides new guidance on how employers should determine whether workers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Through this rule, the DOL is modifying its Wage and Hour Division regulations by revising the analysis used to determine employer or independent contractor classification under the FLSA, in an effort to be more consistent with both judicial precedent and the FLSA’s text and purpose. The rule was published in the Federal Register on January 3, 2024, and will take effect on March 11, 2024.

The final rule establishes a six-factor test for employers to use when determining whether to classify a worker as an employee or an independent contractor. The six non-exhaustive factors are:

1. A worker’s opportunity for profit or loss
2. Investments made by the worker and the potential employer
3. The degree of permanence of the work relationship
4. The degree of control an employer has over the work
5. The extent to which the work performed is integral to the employer’s business
6. Use of a worker’s skill and initiative

This rule focuses on the economic realities test developed by various courts over the years and rescinds a previous independent contractor rule issued under the Trump administration that focused more narrowly on only two factors (nature and degree of control over work, and opportunity for profit or loss). Furthermore, the DOL emphasized that this new rule does not contain or adopt an ABC worker classification test, like those utilized by other states.

According to the DOL, this new rule should reduce misclassifications of employees as independent contractors and provide a clear framework for employers who engage or wish to engage individuals who are in business for themselves.

For assistance reviewing or drafting job descriptions or policies, for counsel when faced with classifying or reclassifying certain jobs, handling litigation over these issues, or any related questions, please contact the authors or any member of the Steptoe & Johnson Labor and Employment Compliance Team.