Independent Contractors: Department of Labor Delays Final Rule

February 22, 2021

On January 6, 2021, the U.S. Department of Labor (DOL) announced a long-awaited Final Rule regarding independent contractor status under the Fair Labor Standards Act (FLSA). The DOL intended the new rule to take effect on May 7, 2021 and clarify the test for determining independent contractor status. On February 5, 2021, the DOL announced that implementation of the final rule is delayed, pending further review by the Wage and Hour Division. The DOL has also withdrawn two opinion letters, FLSA 2019-6 (addressing whether a service provider for a virtual marketplace company is an employee of the company or an independent contractor under the FLSA) and FLSA 2019-10 (addressing the compensability of a long-haul truck driver’s time in a truck’s sleeper berth during multi-day trips).

The now delayed Final Rule adopts an “economic realities” test to determine a worker’s status and described the five factors involved in the test:

  • the nature and degree of the individual’s control over the work;
  • the opportunity for profit or loss; skill required for the work;
  • permanence of the working relationship; and
  • whether the work is part of an integrated unit of production.

Improperly characterizing a worker as an independent contractor can lead to liability for wage and hour violations, failing to withhold state and federal payroll taxes, and other violations of federal and state employment laws. Businesses that hire workers as independent contractors should consult with an attorney to verify that the workers meet both federal and state definitions or test for independent contractor status.