Are you an employee or a subcontractor? An Overview of the Recently Introduced Regulation

Evmark Business Solutions

The Wage and Hour Division of the Department of Labor is dedicated to safeguarding the rights of employees throughout the United States. In order to effectively achieve this goal, it is crucial that both businesses and workers understand the distinction between employees and independent contractors who are self-employed. To provide clear guidance on this matter, the Department of Labor has published a final rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act. This rule will ensure that employees are properly compensated with minimum wage and overtime pay, and that law-abiding employers are not at a disadvantage when competing against those who misclassify their workers.

One significant aspect of the final rule is the rescission of the 2021 Independent Contractor Rule, which we believe was not in line with established legal precedent and increased the likelihood of misclassification. The new rule aligns with judicial precedent, reducing confusion and promoting compliance to better protect workers. It achieves this by returning to a multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or independent contractor under the FLSA. This approach considers all relevant factors without giving undue weight to any one factor. Additionally, the rule utilizes the longstanding interpretation of the economic reality factors, such as the worker’s opportunity for profit or loss, investments made by both the worker and potential employer, the permanence of the work relationship, the level of control, the integral nature of the work to the potential employer’s business, and the worker’s skill and initiative. This flexible economic reality test is applicable to a wide range of work arrangements in today’s economy.

The final rule will aid the Wage and Hour Division in addressing misclassification and prioritizing the protection of vulnerable workers who are often misclassified. It will also ensure that independent contractors, including freelancers, are accurately classified. We recognize the important role that independent contractors play in our economy, and this rule will not change that. Proper classification of employees and independent contractors is crucial in ensuring that employees receive the wages and protections they are entitled to under the FLSA, while also allowing independent businesses to thrive. All workers, regardless of industry or workplace, should have access to both flexibility and essential worker rights.

We encourage both workers and employers to familiarize themselves with the final rule and its implications. By doing so, we can continue to promote fair and lawful employment practices and protect the rights of all workers. 

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