The U.S. Department of Labor has issued its final rule on how to determine when a worker qualifies as an employee and when they may be considered an independent contractor under the Fair Labor Standards Act. The new rule, which takes effect on March 11, 2024, borrows heavily from a previously used six-point test. 

The new independent-contractor rule reinstates a multifactor analysis previously used 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:

1. any opportunity for profit or loss a worker might have;

2. the financial stake and nature of any resources a worker has invested in the work;

3. the degree of permanence of the work relationship;

4. the degree of control an employer has over the person’s work;

5. whether the work the person does is essential to the employer’s business;

6. and a factor regarding the worker’s skill and initiative.

The new rule rescinds the 2021 Independent Contractor Rule, which the Department of Labor said to be “inconsistent with the law and longstanding judicial precedent.” 

In a press statement the DOL said the final 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.” 

For additional information on worker classification and related tax and payroll issues, please contact Gray, Gray & Gray at 781.407.0300.