Independent Contractor Rule Changes

The U.S. Department of Labor released its final rule on January 9, 2024, regarding the test for determining when a worker is an employee or an independent contractor. While the rule will likely be challenged in the courts, employers should still familiarize themselves with the new standard.

How Have the Rules for Classifying Independent Contractors Changed?

Under the Trump Administration, the test for whether a worker should be classified as an employee or independent contractor focused on two core factors: (1) the nature and degree of the worker's control over the work; and (2) the worker's opportunity for profit or loss.

The new rule instead uses a totality of circumstances test, which requires employers to consider six factors of equal weight to determine whether a worker is an employee or an independent contractor. The six factors are:

1. The degree to which the employer controls how the work is done.
2. The worker's opportunity for profit or loss.
3. The amount of skill and initiative required for the work.
4. The degree of permanence of the working relationship.
5. The worker's investment in equipment or materials required for the task.
6. The extent to which the service rendered is an integral part of the employer's business.

Why Is the Rule Change Important?

Business groups see the new rule as less business-friendly because it may lead to more workers being classified as employees. Unlike independent contractors, employees are entitled to minimum wage, overtime, and other benefits. Certain industries and companies like Uber and Lyft, are more likely to be affected by the new standard because they classify many of their workers as independent contractors. These workers may argue that under the rule change, they should be classified as employees who have a right to benefits under the Fair Labor Standards Act.

When Does the Rule Go Into Effect?

The final rule was published on January 9, 2024, and goes into effect on March 11, 2024.

What Steps Should Employers Take?

Businesses that use independent contractors should consult an employment attorney for advice regarding their situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.