(Last Updated On: January 22, 2023)
At the start of 2024, the US Department of Labor (DOL) released a final rule on independent contractors under the Fair Labor Standards Act (FLSA). For both employees and employers, it is essential to learn about the final rule and to understand how federal law guides employers in classifying workers. Whether you are hiring workers yourself for your business and need to determine whether to classify the worker as an employee or an independent contractor, or you currently do work for an employer and need more clarity concerning your own status, our experienced Massachusetts employment law attorneys can tell you more. We serve both employers and employees throughout Massachusetts, including Greater Boston.
New Rule Provides Guidance on Classification
According to a news release from the DOL, the new rule “provides guidance on proper classification and seeks to combat employee misclassification,” which is “a serious problem that impacts workers’ right to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition, and hurts the economy at-large.”
In short, the new rule will guide employers and workers alike on how to properly classify a worker as an employee or as an independent contractor. The distinction is extremely important, as the quote above suggests because it determines an employer’s obligations with regard to the worker and the worker’s rights under the FLSA. When a worker is classified as an employee, the employer is required to uphold protections provided by the FLSA, including protections concerning the employee’s right to a minimum wage and overtime, and the employer is bound by various tax and recordkeeping responsibilities. Differently, when a worker is classified as an independent contractor, there are not the same protections under the FLSA and other laws, including Massachusetts state laws.
Understanding the New Rule
As the news release explains, the new rule “restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.” In restoring the multifactor analysis, the DOL rescinds the 2021 Independent Contractor Rule. Accordingly, neither employers nor employees should look to the 2021 Independent Contractor Rule for guidance but instead to the new final rule, which will be effective as of March 11, 2024.
In assessing the factors for purposes of worker classification, employers will need to determine the nature of the worker’s relationship with the employer. These are the six factors cited by the DOL as part of the multifactor analysis:
- Worker’s opportunity for profit or loss;
- Investments and financial stake of the work for the employer and the worker;
- Degree of permanence of the work relationship;
- Nature and degree of control the employer has over the worker’s work;
- Whether the work is essential or integral to the employer’s business; and
- Worker’s skill and initiative.
Language in the Federal Register makes clear that an independent contractor is a worker who is “not economically dependent on an employer for work and are in business for themselves.” Freelancers are a common type of independent contractor. An employee, differently, is a worker who is not in business for themselves and operates “directly or indirectly in the interest of an employer.”
Summing Up: Key Details to Know
Whether you are an employer or an employee in the Boston or Newton area, our Massachusetts employment law attorneys want to sum up the key details of the final rule concerning independent contractors so that you can ensure you are in compliance (as an employer) or receiving appropriate legal protections where required by law (as an employee). The following are the central points surrounding the DOL news release and final rule:
- Final rule rescinds the 2021 rule;
- Final rule restores the multifactor “economic reality” test or analysis for classifying a worker as an employee or independent contractor;
- Multifactor analysis requires a weighing of the factors in each case, known as a “totality of the circumstances” analysis (“where no one factor is determinative”);
- Final rule expressly does not adopt an “ABC test” that requires all factors be satisfied but instead adopts the totality of the circumstances test described above;
- Final rule is distinct from the Notice of Proposed Rulemaking that went out in October 2022 since the final rule took into account a range of comments from various parties with stakes in the substance of the final rule (thus, you will need to look to the Final Rule for reference as opposed to earlier proposals); and
- Effective date is March 11, 2024.
Contact a Boston Employment Law Attorney for Assistance
Properly classifying workers as employees or independent contractors is essential for employers to remain in compliance with federal and state law in Massachusetts, and it is also critical for workers so they can have a clear understanding of their rights and obligations under the law. If you have any questions about worker classification or require assistance, you should get in touch with one of the experienced Massachusetts employment lawyers at our firm. Contact Rodman Employment Law today.