In November, we summarized the proposed changes to the Fair Labor Standards Act and the guidelines for classifying individuals as employees or independent contractors (IC). The Final Rule was just released and will be effective on March 8, 2021. Here is a link to the original blog with explanations of the changes.
The Final Rule:
- Reaffirms the “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
- Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
- The nature and degree of control over the work.
- The worker’s opportunity for profit or loss based on initiative and/or investment.
- Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is part of an integrated unit of production.
- Gives importance to the actual practice of the worker and the potential employer, which is more relevant than what may be contractually or theoretically possible.
- Provides six fact-specific examples applying the factors.