On January 9, 2024, the US Department of Labor (DOL) announced a final rule to help employers and workers better understand when a worker qualifies as an employee and when they may be considered an independent contractor under the Fair Labor Standards Act (FLSA).
According to the news release, the rule provides guidance on proper classification and seeks to combat employee misclassification, a serious problem that impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition, and hurts the economy at-large.
The guidance provided by the final rule aligns with longstanding judicial precedent on which employers have previously relied to determine a worker’s status as either an employee or independent contractor. The new rule will preserve essential worker rights and provide consistency for entities covered by the FLSA.
The new “independent contractor” rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor. The rule addresses six factors that guide the analysis of a worker’s relationship with an employer, including any opportunity for profit or loss a worker might have; the financial stake and nature of any resources a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the person’s work; whether the work the person does is essential to the employer’s business; and a factor regarding the worker’s skill and initiative.
The rule separately rescinds the 2021 Independent Contractor Rule that the department believes is not consistent with the law and longstanding judicial precedent.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” explained Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
The final rule takes effect on March 11, 2024. To access the final rule and additional information such as FAQs and the Small Entity Compliance Guide, click here.
Compliance Perspective
Issue
A worker is entitled to minimum wage and overtime pay protections under the FLSA when there is an employment relationship between the worker and an employer and there is coverage under the FLSA. The FLSA requires that, among other things, covered employers pay their nonexempt employees at least the federal minimum wage for every hour worked and overtime pay for every hour worked over 40 in a workweek, and it mandates that employers keep certain records regarding their employees. It is essential that individuals who determine workers’ classifications are knowledgeable about the differences between employees and independent contractors. Misclassification of an employee’s status can lead to violations of the FLSA which can result in fines and other penalties.
Discussion Points
- Review your policies and procedures on fair wages, overtime pay eligibility, and recordkeeping. Determine if your policies clearly state the differences between an independent contractor and an employee. Update to reflect the new guidance.
- Provide training for staff who have responsibility for ensuring accuracy of overtime pay and recordkeeping, and ensure they demonstrate competence with the requirements of your policy and procedures and the FLSA, including the difference between an employee and an independent contractor. Document that these trainings occurred, and file each signed document in the employee’s education file.
- Periodically audit to ensure that overtime pay eligibility and recordkeeping are accurate and being reported correctly.
*This news alert has been prepared by Med-Net Concepts, LLC for informational purposes only and is not intended to provide legal advice.*
