Independent Contractor? – New Rule?

Independent Contractor Status under the Fair Labor Standards Act

The Department of Labor on January 6, 2021 clarified, with a much-needed final rule, the standard for determining independent contractor status. If the rule stands, it will have an impact on workers’ benefits, tax structure, and labor relations.

The rule contains several factors for determining whether a worker is economically dependent on a business (an employee) or is in a business for themselves (an independent contractor). The two core factors most relevant to making this determination are: 1. The nature and degree of control over the work; 2. The worker’s opportunity for profit or loss based on initiative and/or investment. However, when the two core factors point towards opposite classifications, three other factors come into play for the analysis. These factors are: 1. The amount of skill required for the work; 2. The degree of permanence of the working relationship between the worker and the potential employer; and 3. Whether the work is part of an integrated unit production. Lastly, the rule includes six fact-specific examples to better illustrate application of the factors.

Support or Opposition?

Officials, depending on their political leanings, have come out in support and opposition to the rule. For example, the outgoing U.S. Secretary of Labor, Eugene Scalia, said “This rule brings long-needed clarity for American workers and employers.” Furthermore, Scalia went on to say. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.” On the other hand, the rule may never take effect as labor unions and officials in the incoming Biden administration oppose the rule. However, the rule, unless nullified or rolled back by the incoming administration, shall take effect on March 8^th. So, stay tuned!