The Department of Labor recently released some important clarifications to the rules in which help us understand the independent contractor status of a worker.
The newly issued rule includes four main changes to the process of determining if a worker is an independent contractor. Now, the standard for employee versus independent contractor status under the FLSA includes:
“Economic Reality” Test: The new test determines if a worker is in business for themself (independent contractor) or economically dependent on an employer for work (employee).
“Core Factors”: Two core factors help determine whether or not a worker is economically dependent on an employer. They include the nature and degree of the worker’s control over their work and the worker’s opportunity for profit or loss based on initiative and/or investment.
Three Additional Factors: If unable to determine a worker’s status, three additional factors can be used to help determine classification. They include the amount of skill required for the work, the degree of permanence in the relationship between the worker and the employer, and if the work is part of an integrated unit of production.
Actual Practice Relevance: When determining a worker’s independent contractor status, actual practice is more relevant than what’s contractually or theoretically possible.
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