January 11, 2021

Trump Administration Releases Final Independent Contractor Rule

On January 6, the U.S. Department of Labor (DOL) released a final regulation clarifying the standards for differentiating between full-time employees and independent contractors under the Fair Labor Standards Act (FLSA). By clarifying which workers should be classified as employees, the regulation protects the rights of businesses and workers to enter into contracting arrangements.

Specifically, the rule:

  • Reaffirms an “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.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

The final rule was published in the Federal Register on January 7, 2021, but will not take effect until March 8, 2021. That means that it is possible that the incoming Biden administration could delay the rule’s implementation, write a new rule, or refuse to defend the rule if there are legal challenges to it.

Stay tuned to Connecting the Dots for updates as the transition to the Biden administration takes place.