Understanding the Recent Changes to Independent Contractor Regulations

Independent Contractor

On March 11, 2024, in a notable regulatory shift, the U.S. Department of Labor (DOL) has reinstated what many believe to be the traditional independent contractor regulations. This action replaces the 2021 regulations introduced during the Trump administration, which many believed had simplified the classification of workers as independent contractors. The reinstated regulations reflect a return to the multifaceted economic reality test that has been a cornerstone of employment law since the 1940s.

The economic reality test, as reaffirmed in 2024, evaluates the employment status of a worker based on six critical factors:

  1. The degree of control the employer has over the work: This factor examines how much control the employer exercises over the tasks and activities of the worker.
  1. The worker’s opportunity for profit or loss: This considers whether the worker can influence their profit or loss through their managerial skill or business investment.
  1. The worker’s investment in facilities or equipment: This looks at the extent of the worker's investment in the tools and facilities they use.
  1. The permanency of the relationship: This evaluates the duration and stability of the relationship between the worker and the employer.
  1. The skill required in the work: This factor assesses the amount of skill and expertise required to perform the work effectively.
  1. The extent to which the work is an integral part of the employer’s business: This examines how essential the worker's role is to the core operations of the business.

The 2021 regulations had emphasized two of these factors—control and opportunity for profit or loss—as being predominant, arguably making it easier to classify workers as independent contractors. However, the 2024 rule returns to the broader analysis, requiring consideration of all six factors to ensure a thorough evaluation of the working relationship under the Fair Labor Standards Act (FLSA).

As of today, the rule in effect is the reinstated six-factor economic reality test. This comprehensive approach provides a more nuanced assessment of employment relationships protecting worker rights in a diverse and evolving labor market.

Not surprisingly, this rule faces legal challenges and potential legislative actions, but for now is the standard for classifying workers as employees or independent contractors under federal law.

For businesses and employees navigating this regulatory landscape, particularly in the current gig economy, understanding these factors is key to determining correct employment classifications and ensuring compliance with labor laws, particularly wage and hour laws.

If you are facing concerns related to a similar issue or if you have questions about your Employment situation or Business Litigation situation, please feel free to contact us here. We have many years of experience handling such matters and will be able to assist you in resolving the dispute.

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