DOL: Final Rule on Classifying Workers as Independent Contractors

January 9, 2024: Today, the US Department of Labor announced its Final Rule on classifying workers as employees (W2 status) and independent contractors (1099 status).

WHEN: Final Rule takes effect on March 11, 2024

The new independent contractor rule is intended to provide guidance on the proper classification of workers and to combat employee misclassification. The DOL considered feedback from stakeholders throughout 2022, and used that information to craft a new rule intended to preserve essential worker rights and provide consistency for employers covered by the Fair Labor Standards Act. The final rule restores the multifactor "economic reality" analysis used by courts for decades.

The rule addresses 6 factors to analyze a worker's relationship with an employer:

(1) opportunity for profit or loss a worker might have depending on managerial skill;

(2) the financial stake and nature of any resources a worker has invested in the work;

(3) the degree of permanence of the work relationship;

(4) the degree of control an employer has over the person’s work;

(5) extent to which the work the person does is essential/integral to the employer’s business; and

(6) a factor regarding the worker’s skill and initiative.

The final rule does not adopt an "ABC" test, which permits an independent contractor relationship only if all three factors in a three-factor test are satisfied. This test relies on the totality of the circumstances where no one factor is determinative.

Note: a worker cannot voluntarily waive employee status and choose to be classified as an independent contractor. If a worker is an employee under FLSA, they cannot waive FLSA-protected rights, such as minimum wage or overtime pay.

US Department of Labor announces final rule on classifying workers as employees or independent contractors under the Fair Labor Standards Act | U.S. Department of Labor (dol.gov)