Department of Labor Releases New Independent Contractor Rule

The Department of Labor has published a new rule, effective on March 11, 2024, that may change the way employers classify workers. The proper classification of workers is significant as misclassification can have severe economic impacts on both workers and employers.

Generally, there are two classifications of workers: employees and independent contractors. A worker classified as an employee is required to be paid minimum wage and overtime and is generally eligible for benefits and unemployment, while an independent contractor does not receive the same benefits. Independent contractors make up about 45% of the workforce and recent cases involving Lyft, Uber, and Doordash have raised questions around the debate between employees and independent contractors.

The new rule implements a six-factor economic realities test that considers the “totality of the circumstances” to determine whether a worker is an independent contractor or employee under the Fair Labor Standards Act. The six factors should all be given the same weight and are only a guide to proper classifications. These six factors include:

1. Opportunity for profit or loss depending on managerial skills. This covers the worker’s ability to negotiate the price of goods or services and make independent business decisions.

2. Investments by the worker and employer. This includes whether a worker is covering the cost of tools, equipment or other expenses related to the work.

3. Degree of permanence of the work relationship. Exclusive, indefinite or continuous work are evidence of an employee relationship.

4. Nature and degree of control. This includes a business’s ability to control performance of workers, including scheduling and supervision.

5. Extent to which the work performed is an integral part of the employer’s business. This factor considers whether the work is critical, necessary or essential to the business.

6. The skill and initiative of the worker. This includes whether the worker is using his or her special skills and taking entrepreneurial initiative.

The economic realities test replaces the 2021 rule that was termed the “core factors test”. The core factors test gave some weight to all six factors but put greater emphasis on the nature and degree of control and the opportunity for profit or loss.

If you have questions or concerns about the new Department of Labor rule, McNeely Law has a team of experienced Indiana business attorneys ready to help you with all your legal needs. Give us a call at (317) 825-5110 to discuss any questions you may have.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.