The U.S. Department of Labor (DOL) recently published its 339-page final rule on how it will consider workers “employees” or “independent contractors” using a multi-factor approach.

The DOL final rule is based on the Fair Labor Standards Act (FLSA). The FLSA sets the federal minimum wage rate for all hours worked and requires overtime pay of at least time-and-a-half for every hour worked over 40 in a workweek. FLSA also requires employers to maintain employee time and pay records and prohibits dismissal or discrimination against employees who file a complaint regarding their pay. By contrast, independent contractors work for themselves and make or lose money without regard to minimum wages.

Other federal statutes touch on the employee/independent contractor question, including the National Labor Relations Act (NLRA) and the Social Security Act. While this new DOL rule pertains to the FLSA, it contains broader implications. Under federal law, only employees can unionize. Similarly, only employees would be covered under the “joint employer” rule, recently adopted by the National Labor Relations Board, which says more than one employer may be held responsible for an individual worker’s grievances. A finding that a worker is an employee under the FLSA, then, can have ramifications beyond minimum wage levels.

These latest DOL regulations reject a Labor Department ruling from the prior administration that attempted to simplify the employee/independent contractor question by establishing two “core” factors, out of six factors overall, in determining worker status – the nature and degree of control over the work and the worker’s opportunity for profit or loss. The new final rule considers all six factors  equally under an “economic reality test.”

The six overall factors in the “economic reality test” are:

  • Opportunity for profit or loss depending on managerial skill
  • Investments by the worker and the potential employer
  • Degree of permanence of the work relationship
  • Nature and degree of control
  • Extent to which the work performed is an integral part of the potential employer’s business
  • Skill and initiative

In its responses to comments filed to the proposed rule, the DOL offers two incremental changes that could benefit an owner-operator in trucking. First, the DOL recognizes that an owner-operator who wholly owns or independently leases a truck may exhibit a “capital or entrepreneurial investment” that would qualify as an “investment by the worker” under the second factor.

Second, the DOL acknowledges that possession of a commercial driver’s license (CDL) is a “skill” under the sixth factor.

Applying the new DOL approach to individual worker situations is complex and fact intensive. The DOL refers to conducting a “totality-of-the-circumstances analysis” in applying the “economic reality test” and its six factors. The department adds that the six factors are not exhaustive, and no single factor can determine whether a worker is an employee or independent contractor.

The new rules take effect on March 11, 2024, however, legal challenges could delay implementation.

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