In January of 2024, the U.S. Department of Labor published a final rule revising its guidance for analyzing whether a worker constitutes an employee or independent contractor under the Fair Labor Standards Act. How an individual is classified is important because employees, but not independent contractors, are entitled to certain protections under the FLSA, including as to minimum wage and overtime pay. Incorrectly classifying employees as independent contractors can lead to serious consequences for a business.

The final rule, effective March 11, 2024, replaces the guidance that the Department of Labor issued in 2021, and makes the analysis more consistent with how courts have long determined this issue. Key factors in the analysis include whether the worker has an opportunity for profit or loss; investments made by the worker and employer; how permanent the work relationship is; the degree of control the company has over the person’s work; whether the work the person performs is integral to the company’s business; and the degree of the worker’s skill and initiative.

The Department of Labor’s 2021 rule put more emphasis on the opportunity for profit or loss and the degree of the employer’s control, an emphasis which is no longer present. The new guidance is expected to support more workers being deemed employees than under the 2021 rule.

Note that the federal guidance for classifying workers as employees or independent contractors may differ from state law.  For example, under the Illinois Wage Payment and Collection Act, a person who is permitted to work by a company is presumed to be an employee unless all of the following conditions are satisfied: (1) the individual has been and will continue to be free from control and direction over the performance of his work, both under his contract of service with his employer and in fact; and (2) the individual performs work which is either outside the usual course of business or is performed outside all of the places of business of the employer unless the employer is in the business of contracting with third parties for the placement of employees; and (3) the individual is in an independently established trade, occupation, profession or business.

The attorneys at Goldenberg Heller & Antognoli, P.C. have extensive experience representing businesses and advising them of their legal obligations. Feel free to contact us today at (800) 782-8492 with any questions.