DOL Issues Final Rules on Independent Contractor Classification

The U.S. Department of Labor (DOL) released a final rule on January 9th that changes the criteria for classifying independent contractors. 

The final rule requires companies to weigh various factors to determine whether a worker is an employee or an independent contractor. The final rule will take effect on March 11. 


Background to the Ruling 

In June 2023, a decision from the National Labor Relations Board (NLRB) altered the standard employers must use to determine whether someone qualifies as an independent contractor under the National Labor Relations Act (NLRA). 

The NLRB rejected a previous standard that held that entrepreneurial opportunity for gain or loss should be considered when applying the independent contractor test. Instead, the board ruled that entrepreneurial opportunity should be considered alongside a list of traditional common-law factors. Those factors include the extent of control the employer exercises over the details of the work, the method of payment, how much skill is required in the work, and whether the employer supplies the tools and the place of work. 


2024 Independent Contractors Defining Criteria 

Under the new rule, employers would use a totality-of-the-circumstances analysis, in which none of the factors carry greater weight. 


The new test includes six factors: 

  1. The degree to which the employer controls how the work is done. 
  2. The worker’s opportunity for profit or loss. 
  3. The amount of skill and initiative required for the work. 
  4. The degree of permanence of the working relationship. 
  5. The worker’s investment in equipment or materials required for the task. 
  6. The extent to which the service rendered is integral to the employer’s business. 


Who does this new ruling impact? 

This ruling is meant to apply broadly to all types of workers, not specifically to certain industries or certain types of work. But it does impact the “gig economy,” such as delivery drivers, freelance workers and consultants such as writers, musicians, IT professionals, trainers, and other people whose work is project-based.   


Under the federal Fair Labor Standards Act (FLSA), employees are entitled to minimum wage, overtime pay and other benefits. While independent contractors are not entitled to such benefits, they generally have more flexibility to set their own schedules and work for multiple companies. 

The DOL intends to release more guidance to help employers comply with the final rule.