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DOL Finalizes Controversial New Independent Contractor Rule

Authored by Daniel N. Ramirez of Monty & Ramirez LLP:

Does your company use independent contractors? Can the government or a judge conclude that your contractors are your employees and are entitled to overtime pay? Yes, it’s a possibility with the new “employee-friendly” Department of Labor (“DOL”) final rule that goes into effect on March 11. This final rule explains when a worker will be classified as an employee or independent contractor under the Fair Labor Standards Act (“FLSA”).

The new DOL rule shifts to a totality-of-the-circumstances analysis in determining whether an individual should be considered an employee or an independent contractor. The final rule relies on six (6) economic reality factors. No factor is given more weight than another and should be applied equally. These six (6) factors include:

1.The worker’s opportunity for profit or loss.

2.The worker’s investment in equipment or materials required for the task.

3.The degree of permanence of the working relationship.

4.The nature and degree to which the employer controls the work.

5.The extent to which the service rendered is an integral part of the employer’s business.

6.The amount of skill and initiative required for the job.

Misclassifying employees as independent contractors will continue to be a headache for employers relying on independent contractors to support their business model. Employers must reevaluate their business models to avoid legal exposure triggered by a DOL investigation or a wage and hour lawsuit. If an independent contractor is deemed an employee, the individual will be entitled to overtime pay for at least the past two (2) years. The employer may also be liable for additional damages and attorney’s fees.

Time will tell if this final rule helps clarify the differences between independent contractors and employees or further muddles the waters for courts to decide employment status based on the totality of circumstances approach. Heading toward March 2024, when the final rule goes into effect, employers should revisit their independent contractor business relationships and confirm that they meet the new “test” to avoid getting sued by workers or investigated by the DOL.

Monty & Ramirez can help evaluate your company’s independent contractor business model to determine if it complies with the DOL final rule. We Know What Works.