On January 6, 2021, the US Department of Labor announced a final rule establishing the test for whether a worker will be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). The final rule adopts the “economic reality” test, which was set forth in the DOL’s proposed rule published in September 2020. Under that test, the two core factors are the nature and degree of control over the work and the worker’s opportunity for profit or loss. For a full discussion of that test, these key factors, and other relevant considerations, please review Lake Effect’s September 22, 2020 blog on the DOL’s proposed rule. The final rule also reiterates that the actual practice of the employer and the worker will govern the inquiry, not contractual language or theoretical possibilities.
The final rule will be published in the Federal Register on January 7, 2021 and take effect on March 8, 2021.
Keep in mind that DOL’s final rule is unlikely to fully resolve this challenging issue for most employers. Many states have adopted their own tests for independent contractor status, and these can vary widely from state-to-state, and even within a state, depending upon the issue being addressed (i.e., unemployment eligibility, wage and hour, tax liability). Lake Effect continues to monitor federal and state laws and guidance relating to independent contractor status, and we will keep you apprised of developments in this area.
Lake Effect is here to answer your questions about independent contractors, FLSA, and labor laws. We continue to monitor important legal and HR developments, as well as COVID-related updates from federal, state, and local authorities. Please keep watching our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at firstname.lastname@example.org or 1-844-333-5253.