US DOL Independent Contractor Final Rule

by | Jan 13, 2021 | Employment Law | 0 comments

DOL Independent Contractor Final Rule

The U.S. Department of Labor (DOL) announced a final rule for employers in determining the classification of a worker as an employee or an independent contractor.  The rule will go into effect on March 8, 2021.

UPDATE ON 3/4/2021: The U.S. Department of Labor just announced that they are delaying the implementation of the final rule on Independent Contractors for 60 days.  The rule was scheduled to go into effect on March 8, 2021 but will now be delayed to May 7, 2021.

In its summary release, the DOL outlined the following major points of the new rule:

  • The rule confirms the use of the “economic reality” test to determine whether an individual is in business for themselves (independent contractor) or is economically dependent on a potential employer for work (employee).  In making this determination, the DOL identifies two “core factors”:
    1. The nature and degree of the worker’s control over the work
    2. The worker’s opportunity for profit or loss based on initiative and/or investment
  • In addition to these two core factors, the DOL also provides three other factors that can offer additional guidance, especially when the two core factors do not point to the same classification:
    1. The amount of skill required for the work.
    2. The degree of permanence of the working relationship between the worker and the potential employer.
    3. Whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the employer is more relevant in making the determination than what may be contractually or theoretically possible.  For example, if a contract between the company and the worker gives the company the authority to exercise a certain control over the worker but the business doesn’t ever actually exercise that control, it wouldn’t weigh as heavily in the determination.   
  • Finally, the rule provides six specific examples of applying the factors outlined above.

It’s important to note that some states have their own laws for determining independent contractor status including California, Oregon and Washington.  The U.S. DOL’s rule would only apply to Federal wage and hour law and would not replace individual state laws.