Protecting Employers Since 1985
US Department of Labor’s Final Rule on Independent Contractor vs Employee is Ready to Set New Standards
On January 10, 2024, the US Department of Labor (DOL) published the Final Rule (standards) for assessing whether a worker is an independent contract or employee in the Federal Register. The Final Rule is scheduled to take effect on March 11, 2024
The Final Rule is a six factor Economic Reality Test:
- Opportunity for Profit or loss depending on managerial skill.
- Investments by the worker and the potential employer.
- Degree of permanence of the work relationship.
- Nature and degree of control.
- Extent to which the work performed is an integral part of the potential employer’s business.
- Skill and initiative.
The above factors will determine whether the worker is an independent contractor vs employee in the following areas of concern for businesses:
- Fair Labor Standards Act (FLSA) as to minimum wage and overtime.
- Internal Revenue Code as to taxes and liabilities.
- State workers’ compensation and unemployment insurance laws as to benefits and liabilities.
- State law as to collection of debt/child support and various liens and liabilities.
- State exemption laws for industry (e.g. trucking) existing tests of independent contractor vs employee used by federal and state government agencies.
- Internal Revenue Service – 20 Factor Test.
- ABC Test
- Direction and Control Test.
It is anticipated that the Final Rule on or before March 11, 2024 will be contested in the courts. Such litigation will be contentious and probably end up in the US Supreme Court.
As it stands, the Final Rule is weighted in favor of a finding of employee status of the worker. The decisions of the courts may provide more detailed guidance as to the six factors under the Federal Rule.
The best practice for a Company using independent contractors is to attempt to strengthen the factors of the relationship; monitor the US Department of Labor and the Courts for further guidance.
Questions? Contact Anthony J. Caruso, Jr., at 630-377-1554 or by email.
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