On Jan. 9, the Department of Labor’s Wage and Hour Division (WHD) released its highly anticipated final rule on worker classification, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act.”
The final rule, officially published on Jan. 10, will become effective 60 days after it is published on March 11 in the Federal Register.
This rule clarifies how workers are classified, either as employees or independent contractors, for purposes of the Fair Labor Standards Act’s (FLSA’s) wage and hour protections. Because the FLSA does not define “independent contractor,” courts and the WHD rely on the “economic reality test” to determine worker status. The new test mandates a review of each of the following factors to determine worker status:
- Opportunity for profit or loss depending on managerial skill.
- Investments by the worker and the employer.
- Degree of permanence of the work relationship.
- Nature and degree of control.
- The extent to which the work performed is an integral part of the employer’s business.
- Skill and initiative.
In a press statement about the final rule, Emily M. Dickens, SHRM chief of staff and head of public affairs, stated: “This pivotal ruling underscores the importance of clear and consistent regulations, fostering diverse business relationships essential for the demands of the modern economy. HR plays a vital role in ensuring proper worker classification. However, the ongoing shifts in regulatory guidance impose compliance burdens and legal uncertainties on HR professionals and business executives.”
In 2022, SHRM submitted a public comment advocating for the WHD to maintain the 2021 worker classification test that provided core factors to consider and gave workers and American businesses clarity and certainty. SHRM’s advocacy on this issue was noted within the WHD’s final rule, with SHRM’s substantive questions mentioned throughout.
