DEPARTMENT OF LABOR UPDATE: The DOL’s updated Independent Contractor standards are essentially a return to pre-2021 guidelines where 6 factors are weighed equally, rather than the first two being the primary determinants.
The degree to which the employer controls how the work is done.
The worker’s opportunity for profit or loss.
The amount of skill and initiative required for the work.
The degree of permanence of the working relationship.
The worker's investment in equipment or materials required for the task.
The extent to which the service rendered is an integral part of the employer's business.
For the last few years, the Independent Contractor standard has been focused on the first two bullet points above as “core factors,” and thus the Independent Contractor status has been fairly easy to defend. The updated standard will bring all six factors back into equal play, meaning we can anticipate closer scrutiny on assignment of Independent Contractor status, with the intention of avoiding misclassifications. The new rule was finalized in January and is set to take effect on March 11.
What is the new rule? The Department of Labor will now require employers to employ the six bullet points above in making determinations about Independent Contractor status under the Fair Labor Standards Act. All six factors will have equal weight so that the “totality of circumstances” make up the “economic reality” on which the nature of the employment relationship rests.
What has changed? A new rule had been established in 2021 that identified the first two bulleted items as “core factors” to the nature of the employment relationship that would determine Independent Contractor status. The new final rule rescinds the 2021 rule and guidance, and also adds further clarifying language.