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U.S. DOL Publishes Final Rule for Classifying Workers as Independent Contractors

On January 7, 2021, the U.S. Department of Labor (U.S. DOL) published a final rule, which sets forth a new and simpler test for assessing whether a worker is an independent contractor or an employee. The final rule takes effect on March 8, 2021.

The multi-factor test, known as the “economic reality” test, evaluates whether the worker is dependent on the employer for work or is in business for him or herself. It requires an analysis of the following factors:

  1. the worker’s control over their own work; and
  2. the worker’s opportunity for profit or loss based on the work performed.

If examination of these core factors point to the same conclusion, the analysis is concluded. However, three additional factors may be considered for additional guidance if the result is not clear:

  1. the amount of skill required for the work performed;
  2. the permanence of the working relationship; and
  3. how integrated the worker’s position is to the employer’s overall function.

The final rule also clarifies that an employer’s provision of health insurance or other benefits to a worker is not necessarily indicative of the worker’s status, particularly when an independent contractor’s benefits are different than those provided to employees. Additionally, the rule contains a number of examples that are industry-specific to assist employers when performing the economic reality test.

The Biden administration has indicated it plans to take action to halt or delay the implementation of the rule. There may also be other actions taken by Congress or the U.S. DOL to affect the rule’s effectiveness after Inauguration Day. Stock and Leader’s Employment Team will be monitoring the rule, along with other potential changes to labor laws and regulations, as the new administration takes office.

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