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Effective March 11, 2024, the U.S. Department of Labor (DOL) has adopted a new standard for the classification of employees versus independent contractors — a much anticipated update since the DOL issued its Final Rule on January 9, 2024, as previously discussed by BMD. 

In brief, the Fair Labor Standards Act (FLSA) creates significant protections for workers related to minimum wage, overtime pay, and record-keeping requirements. That said, such protection only exists for employees. This can incentivize entities to classify workers as independent contractors; however, misclassification is risky and can be costly. 

New guidance requires the use of a six-factor totality-of-the-circumstances analysis to determine whether the economic realities of the working relationship favor classification as an employee or an independent contractor. Put simply, and per the DOL, if the economic realities demonstrate that the worker is economically dependent on the entity for work, then the worker is an employee. Conversely, if the economic realities demonstrate that the worker is in business for themselves, then they are an independent contractor. 

In making this determination, entities are now required to consider, without limitation: (1) a worker’s opportunity for profit or loss depending on managerial skill; (2) investments by either the entity and/or the worker; (3) the degree of permanence in the working relationship; (4) the nature and degree of control; (5) whether the work performed is integral to the entity’s business; and (6) the skill and initiative required for the work. 

In light of the new guidance, now is a great time for entities to review their working relationships and stay ahead on classification issues to avoid liability under the FLSA.