RGCI - DOL Announces Final Rule on Independent Contractor Status Under FLSA

On January 6, 2021, the U.S. Department of Labor (DOL) announced its final rule to clarify whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The final rule was published in the Federal Register on January 7, 2021 and the effective date is March 8, 2021. You may read the entire rule here.

Since the FLSA does not clearly define the term “independent contractor,” courts and DOL have heavily relied on a multifactor test and subjective evaluation to assess whether a worker is an employee or an independent contractor under the FLSA. These evaluations have largely focused on the “economic reality” or the extent to which the worker is economically dependent on the employer. Historically, if the worker has depended on a particular individual, business, or organization for work, he or she has been considered an employee. If the worker is in business for him or herself, he or she has been considered an independent contractor. The Final Rule introduces a new part to Title 29 of the Code of Federal Regulations clarifying the Department’s interpretation of the FLSA on this issue.

In the Final Rule, DOL:

  • Adopts an "economic reality" test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (FLSA/w-2 employee);
  • Identifies and explained two "core factors," specifically:
    • the nature and degree of the worker’s control over the work; and
    • the worker’s opportunity for profit or loss based on initiative and/or investment.
      • DOL found that these factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves.
  • Identifies three other factors that may serve as additional guideposts in the analysis, including:
    • the amount of skill required for the work;
    • the degree of permanence of the working relationship between the worker and the potential employer; and
    • whether the work is part of an integrated unit of production; and
  • Advises that the actual practices of the putative employer and the worker are more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

DOL provides six examples analyzing the “economic reality factors” in the Final Rule, §795.115, which may be found in the last two pages of the Rule. The Department acknowledged that it could not provide examples for every conceivable scenario; however the examples provided do cover a variety of industries and specific facts.

DOL states in the Final Rule that it believes the rule “is likely to improve the welfare of both workers and businesses on the whole,” for a variety of reasons which include: increased efficiency of the labor market, greater productivity and decreased litigation for businesses, reduction of misclassification of workers, encouragement of firms to create independent contractors for roles that did not previously exist, the potential for businesses to convert positions in a manner consistent with the rule, by providing legal certainty for the worker if the worker substantially controls the work and has a meaningful opportunity for profit or loss based on their own initiative or investment. DOL believes the clarity provided by this rule will lead to improved worker satisfaction and flexibility.

Remember, under FLSA, covered employers are subject to specific employee recordkeeping requirements and are required to pay nonexempt employees at least the federal minimum wage for every hour worked and overtime pay for every hour worked beyond 40 hours in a workweek. However, workers who are deemed independent contractors are not subject to these recordkeeping, minimum wage, and overtime pay requirements. Accordingly, careful, proper classification of workers is imperative. Furthermore, if you have contracts covered by the Service Contract Act (SCA), this classification takes on additional importance. Learn More

If your company needs assistance understanding its obligations under the FLSA and this new rule, Redstone Government Consulting’s HR Team can help. Contact Us Today

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Written by Jamie Brabston

Jamie Brabston Jamie Brabston is a Director/Senior Legal Consultant with Redstone Government Consulting, Inc. (Redstone GCI), specializing in Labor and Employment Law, with an emphasis on government contract law and compliance. Prior to joining Redstone GCI, Jamie was Senior Counsel with Lehr Middlebrooks Vreeland & Thompson, P.C., a boutique labor and employment law firm based in Birmingham, AL. Jamie assists employers with compliance, problem prevention, the analysis of complex employment law and contract related issues, as well as conducting investigations related to all types of employee complaints. In addition, Jamie works with employers in responding to complaints filed with external agencies such as the Equal Employment Opportunity Commission, the United States Department of Labor (Wage & Hour, OSHA and the OFCCP), as well as state Departments of Labor. Jamie also provides litigation support as needed. In addition, Jamie advises federal government contractors with contract specific requirements such as affirmative action compliance, Service Contract Act and Davis Bacon, FAR requirements for ethics policies and awareness programs, the Drug Free Workplace Act and related record keeping. Jamie often assists contractors in performing mock compliance assessments to ensure they are prepared in the event of an audit or investigation. Jamie is a proficient trainer and speaker and is a primary instructor for the Federal Publications Seminars course, “HR for Government Contractors.” Additionally, Jamie regularly conducts training and education for individual employers and their employees on non-discrimination and anti-harassment, as well as training sessions for executive and non-executive management on a wide variety of overall management leadership skills, and government contract specific topics. Jamie also specializes and advises clients on employee benefits issues including ERISA welfare benefit plans, HIPAA, wellness plans, COBRA, the Affordable Care Act, and other federal and state laws, including related reporting requirements. Professional Experience In addition to her experience with Lehr Middlebrooks Vreeland & Thompson, P.C., Jamie was an attorney and shareholder with Huntsville, AL based law firm, Lanier Ford Shaver & Payne from 1994– 2006, where she defended large and small employers, including government contractors, in litigation involving sexual harassment, retaliatory discharge, disability, age, religion, race and sex discrimination, FMLA, ERISA, invasion of privacy, negligent supervision, intentional infliction of emotional distress, fraud and breach of contract. From 2006- 2009, Jamie served as General Counsel, Vice President of Human Resources, and Corporate Secretary for Digital Fusion, Inc., a Huntsville based government contractor. In 2009, Jamie founded her own employment law compliance firm, Practical Employment Solutions, Inc., where she partnered directly with small businesses, including government contractors, to assist them with a full range of human resource and employment law compliance needs specifically targeted to prevent and correct employment law and other compliance issues before governmental audits, investigations or litigation occurred. Jamie has also represented government contractors with restrictive covenant issues, and defended a mid-size, Virginia based contractor in a lawsuit involving allegations of violations of non-competition agreements and misappropriation of trade secrets.

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Small Business Compliance, Human Resources