U.S. Department of Labor implements new independent contractor rule

On January 10, 2024, the U.S. Department of Labor (DOL)published a new final rule revising its guidance on independent contractor classifications under the Fair Labor Standards Act (FLSA). Effective March 11, 2024, the final rule rescinded a rule from 2021 and implemented a new test for determining whether a worker is an employee or an independent contractor under the FLSA. With the final rule now in effect, covered employers with misclassified workers—meaning employees incorrectly classified as independent contractors—could be liable for unpaid wages and civil penalties.

That is because independent contractors, unlike employees, are excluded from minimum wage and overtime protections as well as reporting provisions under the FLSA. Beyond the FLSA, independent contractors are also ineligible for employer’s group health insurance and other employee benefit plans, are not covered under workers’ compensation policies, and are not eligible to receive unemployment benefits. In short, a worker’s classification can have significant implications for both worker and employer. Covered employers should ensure they understand the final rule’s provisions and seek to avoid the serious risks associated with misclassification.

Prior rule