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New Rules for Classifying a Worker as an Independent Contractor or Employee

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New Rules for Classifying a Worker as an Independent Contractor or Employee

By The Employer Group - Jan 12, 2021

The U.S. Department of Labor (DOL) issued a final rule on January 6 clarifying who is an independent contractor versus an employee under the Fair Labor Standards Act (FLSA). The rule is slated to take effect March 8, although its future may be impacted by a new administration.

The DOL’s website provides the following clarification to the rules:

  • 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 two “core factors” that provide the most proof 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 guidance, 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.

The Society of HR Management states, “Employee status triggers employer obligations under various federal and state laws that do not apply to independent contractors, and the responsibility for classifying a worker correctly falls squarely on the employer.” To protect yourself from labor law claims, contact The Employer Group for your HR compliance needs.

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