In 2024, the U.S. Department of Labor (DOL) issued a final rule to clarify how workers are classified which was aimed at distinguishing between employees and independent contractors. This clarification is poised to impact industries nationwide, redefining employer obligations and worker rights under the Fair Labor Standards Act (FLSA).

Worker classification has long been a contentious issue, with significant implications for wages, benefits, and labor protections. Employees are generally entitled to minimum wage, overtime pay, and other benefits under the FLSA, while independent contractors generally are not. The distinction has always been complex, with courts typically considering the “economic dependance” surrounding the relationship between the employer and worker. Misclassification can lead to substantial penalties for employers and loss of benefits for workers.

DOL focused on refining the “economic dependence” test to include the assessment of factors such as:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control over the work performed;
5. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative.

While the DOL emphasizes that “economic dependence” is still the key consideration, it advises that no single factor is determinative of itself. Instead, the employer must consider the totality of all factors to determine a workers’ economic dependence on the employer.

For workers, this could mean greater access to employee benefits and protections for those previously classified as contractors. However, it may also limit flexibility for individuals who prefer contractor status.

For employers, it means clearer guidance to avoid misclassification risks. As such, it is recommended that all employers review all worker contracts and roles to ensure compliance with the listed factors, revise employment agreements and independent contractor contracts to reflect the updated criteria and implement training to educate HR personnel and management teams on the revised standards.