DOL Issues Final Rule on Worker Classification

The U.S. Department of Labor (“DOL”) released a final rule for determining whether workers should be classified as independent contractors or employees, which impacts wages according to the Fair Labor Standards Act (“FLSA”).

The DOL final rule emphasizes the worker’s economic dependence on the business. The 261 page rule can be found here [Federal Register :: Public Inspection: Independent Contractor Status under the Fair Labor Standards Act]. One important development is that the new rule permits employers to provide Independent Contractors with benefits without triggering status as an employee, if the Employer shows proper compliance with the rule’s other provisions.

Generally, the more independence exercised by the worker, the more likely the worker is an independent contractor, which is an extension of the prior list of factors to be used in the analysis. This rule places primary emphasis on control and the opportunity for profit or loss as a result of personal investment as the most critical factors in the analysis.

If both of these factors clearly indicate the status of Independent Contractor, the analysis ends. If it does not clearly result in an Independent Contractor status, other factors include the amount of skill required for the position, the permanence of the working relationship, and how integrated the worker’s role is to the organization’s overall operation.

The DOL’s rule closely mirrors a January 2019 decision issued by the National Labor Relations Board that emphasized an employee-contractor classification test to focus on the worker’s “entrepreneurial opportunity” for profit or loss being an indicator that the worker is more like a small business operator than an employee.

While an Employer’s opportunity to offer some form of benefits to Independent Contractors is likely an important competitive advantage in the marketplace, there is increased risk of clouding a worker’s classification, if the Employer does not pay proper attention to the kinds of benefits it would like to offer a worker and still have the worker remain classified as an Independent Contractor.

If you have any questions regarding classification of employees, do not hesitate to contact any member of the Barrett McNagny Labor & Employment Law Group listed below.