On January 6, 2021, the Department of Labor (the “DOL”) issued a final rule to clarify the classification of workers as employees versus independent contractors under the Fair Labor Standards Act ("FLSA").
The DOL's final rule reaffirms the economic reality test in the determination of whether an individual is in business for himself/herself or economically dependent on a potential employer for work, and specifically identifies two core factors: (i) the nature and degree of the individual's control over the work, and (ii) the individual's opportunity for profit or loss based on initiative and/or investment. The DOL considers these two factors as more probative than other factors in this employee – independent contractor analysis.
Three additional factors considered by the final rule include the amount of skill required for the work, the degree of permanence of the working relationship between the individual and potential employer, and whether the work is part of an integrated unit of production. The final rule considers these factors as additional guideposts in the classification analysis, particularly when the above two core factors do not point to the same classification.
In addition, the final rule considers the actual practice of the worker and the potential employer as more relevant in the application of each factor than what is contractually or theoretically possible.
This final rule was published in the Federal Registrar on January 7, 2021, and will go into effect on March 8, 2021.