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New Federal Regulation Modifies Independent Contractor Classification Criteria

A new U.S. Department of Labor (DOL) regulation that takes effect on March 11, 2024 will alter the criteria for determining whether a worker should be classified as an independent contractor or an employee under the federal Fair Labor Standards Act (FLSA). LeadingAge National will host a webinar with attorneys from Venable, LLP on March 4th at 2:30 p.m. Register here.

The Final Rule, adopted on Jan. 9th, revises the federal framework for determining whether a worker should be treated as an employee or an independent contractor for purposes of the FLSA. Workers who are classified as employees are entitled to various FLSA protections, such as minimum wage and overtime. It is anticipated that the new regulation will classify more workers as employees than the prior rule.

The new regulation replaces the prior five-factor rule with a “totality-of-the-circumstances” framework which uses six factors to assess the working relationship. Unlike the prior rule, which identified “core factors” that were given greater weight, the new regulation does not assign weights to the six factors. They are:

  • the worker’s opportunity for profit or loss depending on managerial skill;
  • investments by the worker and the organization;
  • the degree of permanence of the work relationship;
  • the nature and degree of the organization’s control over performance of the work and economic aspects of the working relationship;
  • the extent to which the work performed is an integral part of the organization’s business; and
  • whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.

The rule states that additional factors may also be relevant to the classification, though it does not define those factors. Employers should assess their classifications for compliance with the new regulation. DOL has posted a Frequently Asked Questions resource that summarizes certain key issues. More information is available from LeadingAge National here.

Contact: Karen Lipson, klipson@leadingageny.org