Employee or Independent Contractor?

Final Rule: Independent Contractor Status under the Fair Labor Standards Act 

The United States Department of Labor announced the withdrawal of the independent contractor rule promulgated by the Trump Administration.

29 CFR Parts 780, 788, and 795

NOTICE:  On May 5, 2021, the Department announced a final rule withdrawing the “Independent Contractor Status Under the Fair Labor Standards Act” final rule (Independent Contractor Rule). The withdrawal will be effective immediately upon publication in the Federal Register on May 6, 2021. [Document Number 2021-09518].

On March 12, 2021, the Department issued a notice of proposed rulemaking (NPRM) proposing to withdraw the Independent Contractor Rule. See 86 FR 14027. After reviewing the approximately 1,000 comments submitted in response to the NPRM, the Department has decided to finalize the withdrawal of the Independent Contractor Rule. As explained in the final rule, the Department believes that the Rule is inconsistent with the FLSA’s text and purpose, and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.

On January 6, 2021, the Department of Labor (Department) announced a final rule clarifying the standard for employee versus independent contractor under the Fair Labor Standards Act (FLSA). The effective date of the final rule is March 8, 2021.

In the final rule, the Department:

  • Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

The final rule was published in the Federal Register on January 7, 2021.

Additional Information

Source: Final Rule: Independent Contractor Status under the Fair Labor Standards Act | U.S. Department of Labor

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