On January 9, 2024, the Department of Labor (DOL) announced a six-factor test for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). This new rule takes effect on March 11, 2024. Companies should review current (and future) independent contractors to ensure compliance with the new framework.

Why is this important?

Being classified as an employee carries with it protections under the FLSA. The FLSA establishes certain wage and hour rights for employees. It prevents employers from misclassifying workers as independent contractors and therefore denying them the right to minimum wage, overtime pay, and other protections. The same protections do not apply to independent contractors. Moreover, misclassified independent contractors can expose employers to significant potential liability.

What has changed?

The 2024 rule, which is more favorable to employees, adopts a six-factor test to determine whether a worker qualifies as an independent contractor. The six factors are:

  1. opportunity for profit or loss depending on managerial skill;
  2. investments by the worker and the potential employer;
  3. degree of permanence of the work relationship;
  4. nature and degree of control;
  5. extent to which the work performed is an integral part of the potential employer’s business; and
  6. skill and initiative.

The rule states that no single factor is assigned a predetermined weight. It also allows for consideration of other factors outside of the six-factor test if relevant to determining a worker’s economic dependence on the employer, Thus, it is likely that where the worker is dependent on the employer for work, they will not qualify as an independent contractor under this rule.

What’s next?

As employers review the new rule, they should consider existing and future independent contractor arrangements and how those fit within the new framework, as well as existing applicable state and local frameworks.

Companies that are heavily reliant on independent contractors or that have a growing number of independent contractors should consider conducting a worker classification audit using the framework provided in this new six-factor test. When reviewing and analyzing their independent contractor relationships, employers should remember that the law presumes every worker is an employee and the employer has the burden of overcoming that presumption for lawful classification of a worker as an independent contractor.

Note for Sequoia Clients: It is important to note that Sequoia does not provide legal advice and clients are responsible for properly classifying their workers. Clients should consult counsel if they want legal advice on how to ensure compliance with the new framework.

Disclaimer: The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog. ©  2024 Sequoia Consulting Group. All Rights Reserved.

Kristen Peters — Kristen is Senior Corporate Counsel for Sequoia, where she provides advice and counsel to the company on employment related issues, and other legal matters. In her free time, Kristen enjoys yoga, swimming, and spending time with her family.