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On January 10, 2024, the U.S. Department of Labor published a final rule that will go

in effect on March 11, 2024.

This rule revises the Department’s guidance on how to analyze who is an employee

or independent contractor under the Fair Labor Standards Act (FLSA). This final rule

rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule

(2021 IC Rule), that was published on January 7, 2021 and replaces it with an analysis

for determining employee or independent contractor status that is more consistent

with the FLSA as interpreted by longstanding judicial precedent.

The misclassification of employees as independent contractors may deny workers

minimum wage, overtime pay, and other protections. This final rule will reduce the

risk that employees are misclassified as independent contractors while providing a

consistent approach for businesses that engage with individuals who are in business

for themselves.


There is no single rule for determining whether an individual is an independent contractor

or an employee for purposes of the FLSA. Rather, an “economic reality test” looks to the

facts of a situation, rather than assuming that a written label, contractual arrangement, or

form of business decides if a worker is economically dependent on an employer. In

assessing economic dependence, courts and the Department have historically analyzed

the circumstances of the employment relationship, considering multiple factors to analyze

whether a worker is an employee or an independent contractor, with no factor or factors

having predetermined weight.

To analyze if a worker is an employee or independent contractor, the final rule provides six

factors that businesses and workers should consider when analyzing the economic realities

of the working relationship.

These factors, described in the economic reality test of the final rule, are:

• Opportunity for profit or loss depending on managerial skill.

• Investments by the worker and the potential employer.

• Degree of permanence of the work relationship.

• Nature and degree of control.

• Extent to which the work performed is an integral part of the potential

employer’s business.

• Skill and initiative.

No one factor or subset of factors determines if a worker is an employee or independent

contractor. Rather, all the circumstances of the relationship should be examined. The

weight given to each factor may depend on the facts and circumstances of the particular

relationship. Also, additional factors may be relevant if they in some way indicate if the

worker is in business for themself as opposed to being economically dependent on the

employer for work.


This rule will lead to more workers being classified as Employees.

Depending on the type of business, this could increase overall work comp exposure.

State Rules still apply which may have different criteria, creating additional


Businesses will face increased Liability Risk surrounding Independent Contractors

who are misclassified.

Given the broad reaching nature of this new law, businesses may find out later rather than sooner that the independent contractors are viewed as employees.  When this happens it will increase work comp expsoure and premiums. We wrote an article about this last year here.

For more information visit the following resources: