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Department of Labor’s Final Rules Further Clarify Independent Contractors and Employee Status

The determination of whether a worker is an independent contractor or an employee for purposes of the Fair Labor Standards Act has been further clarified by the January 7, 2021 final rules published by the Department of Labor (DOL), which went into effect on March 8, 2021.

The DOL’s final rules continue to follow the “economic reality” test in determining whether a worker is deemed an employee or an independent contractor. The “economic reality” test focuses on the nature and degree of control over the worker, as well as the opportunity for profit or loss.

The test places great emphasis on these two factors when determining how a worker should be classified. When both factors suggest the same classification of the worker, there is a substantial likelihood of the worker being classified as such. For example, if the employer has limited control over the day-to-day operations and work product of the worker, and the worker is able to have a direct impact on their own profits and losses, both factors appear to classify the worker as an independent contractor.

If, however, these two main factors do not align, the DOL’s final rule provides three additional factors to assess, including: the permanence of the relationship, the skill required to complete the work, and whether the work is part of an integrated unit of production. The skill required to complete the work and the work being an integrated unit of production suggest that a worker is an independent contractor because these factors do not depend on their employer directly. In contrast, if the relationship is found to be continuous rather than sporadic, the permanence of the relationship factor would suggest that the worker is an independent contractor.

To read the DOL’s final rules, click here.

Authors: Matthew John Markling and the McGown & Markling Team.

Note: This blog entry does not constitute – nor does it contain – legal advice. Legal jurisprudence is like the always-changing Midwestern weather. As a result, this single blog entry cannot substitute for consultation with a McGown & Markling attorney. If legal advice is needed with respect to a specific factual situation, please feel free to contact a McGown & Markling attorney.

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