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U.S. Department of Labor Issues a New Independent Contractor Rule

By Dean Harris posted 01-12-2024 08:40 AM

  

On January 9, 2024, the U.S. Department of Labor (DOL) issued a final rule on determining independent contractor status under the Fair Labor Standards Act (FLSA) that will take effect on March 10, 2024. The new rule replaces the independent contractor rule published on March 8, 2021.  

Under the new rule, the DOL will consider the totality of circumstances in each case to determine whether a worker is an employee or an independent contractor. These factors include, but are not limited to, the following: 

  • The worker’s opportunities for profit or loss based on managerial skills that affect the worker's economic success or failure in performing the work. 

  • The worker’s capital or entrepreneurial investment in the costs of performing the work. 

  • The degree of permanence in the working relationship. 

  • The potential employer's control, including reserved control, over the performance of the work and the economic aspects of the working relationship. 

  • Whether the work performed is an integral part of the employer’s business. 

  • Whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.   

  • Any additional relevant factors that indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work. 

Until the 2021 rule, the DOL had relied on similar factors identified in decades of federal court cases to determine workers’ classification as an employee or independent contractor. The 2021 rule was the DOL’s first attempt to define worker status by regulation. But that rule gave two factors greater weight than the remaining factors: the nature and degree of control over the work and the worker's opportunity for profit or loss. The new test returns to the principle applied by the U.S. Supreme Court and many other federal court cases for decades. The determination of worker status is a balancing test in which no single factor is dispositive or given more weight than other factors. All relevant factors should be considered.  

The new rule is consistent with a Colorado Supreme Court case,  Industrial Claim Appeals Office v. Softrock Geological Services, Inc., holding that for the purpose of determining if a worker is an independent contractor under the Colorado Employment Security Act, whether the worker  is customarily engaged in an independent trade, occupation, profession, or business is resolved only by examining the totality of circumstances in the relationship between the worker and the employer. No single factor or set of factors is dispositive. 

Improperly classifying employees as independent contractors is a costly and disruptive mistake for employers. It can result in liabilities that include back wages and overtime, back unemployment insurance premiums, fines and penalties, and even criminal liability under the FLSA and Colorado law. Employers Council can assist Consulting and Enterprise members in determining the proper classification of their workers. Contact us at info@employerscouncil.org. 


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