• Jackson Shields


By James L. Holt, Jr.

January 7, 2020

On January 6, 2021, the Department of Labor (DOL) finalized its new regulations for determining whether workers are independent contractors or “employees” as defined by the Fair Labor Standards Act (FLSA). The FLSA is the federal law that requires employers to pay their employees a minimum wage and overtime. Independent contractors are not subject to the FLSA’s wage and hour requirements. In recognition of developments in the economy and the need for flexibility in the workforce, the new regulation sets forth an economic reality test intended to make it easier to establish an independent contractor relationship.

Under the new economic reality test, if individuals are in business for themselves, they would be independent contractors. Two factors are to be considered when making this determination:

1) The extent of the worker’s control over the work; and

2) The worker’s opportunity for profit or loss based on initiative and investment.

While the new test certainly simplifies the rule on determining employees versus independent contractor status, this new test only applies to the FLSA. The consequences of misclassification of an employee’s status can impact employers in a significant number of ways. For example, other federal laws, such as FMLA, Title VII, and the National Labor Relations Act, have their own test. Various state laws also apply their own test in determining employee status under workers compensation, discrimination, whistleblower, and unemployment statutes.

The DOL’s new test becomes effective March 8, 2021, but could be subject to modification under the incoming Presidential administration, so its future remains somewhat uncertain.

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