The U.S. Department of Labor (“DOL”) recently published its final rule (89 FR 1638) addressing how to determine whether a worker is classified as an employee or an independent contractor under the Fair Labor Standards Act (“FLSA”). This rule has significant implications for employers, as it refines the criteria used to evaluate worker classifications and underscores the importance of compliance. The original rule, published during the prior administration, focused on two core factors: the degree of control over the work and the worker’s opportunity for profit or loss. It aimed to simplify the classification process but was criticized for potentially making it easier to classify workers as independent contractors.   The new rule departs from that approach by reinstating a broader “totality of the circumstances” analysis, incorporating six factors to assess economic dependence. This approach provides a more comprehensive framework, emphasizing the full scope of the working relationship rather than prioritizing a few key factors. Resource: U.S. Department of Labor – Final Rule on Independent Contractor Classification   Key Aspects of the Rule The DOL’s final rule emphasizes a “totality of the circumstances” approach, with the ultimate question being whether a worker is economically dependent on the employer or is in business for themselves. While the rule retains the “economic reality” test, it outlines six core factors that employers must evaluate: Opportunity for profit or loss depending on managerial skill Investment by the worker and the employer Degree of permanence of the work relationship Nature and degree of control exercised by the employer Extent to which the work is an integral part of the employer’s business Skill and initiative required for the work No single factor is determinative; rather, they are weighed collectively to assess whether the worker operates as an independent contractor or is economically dependent on the employer and thus classified as an employee.   Implications for Employers 1. Increased Scrutiny Employers should expect increased scrutiny of worker classifications under the revised framework. Misclassifying workers can lead to significant legal and financial consequences, including liability for back wages, overtime pay, and penalties. With the DOL’s heightened focus on enforcement, businesses should carefully evaluate their existing classifications. 2. Review of Contractor Agreements Businesses that rely on independent contractors should review their agreements and operational practices to ensure they align with the new rule’s criteria. Factors such as the contractor’s investment in tools or equipment, the permanence of the working relationship, and the level of control over work hours and tasks should be documented and defensible. 3. Operational Adjustments Employers may need to adjust operational practices to reflect the independent status of contractors. For example, allowing greater autonomy in how and when work is performed or reevaluating the permanence of relationships with contractors could help demonstrate compliance with the rule. 4. Proactive Compliance Measures To mitigate risks, employers should conduct internal audits of worker classifications and consult legal counsel to ensure adherence to the updated standards. Employee misclassification lawsuits are costly and time-consuming, making proactive compliance a wise investment.   Conclusion The DOL’s final rule underscores the need for employers to exercise diligence when classifying workers. By thoroughly understanding and applying the “economic reality” test, businesses can reduce the risk of misclassification and its associated penalties. Employers should stay informed of any future developments in this area, as worker classification continues to be a priority for federal and state labor agencies. For more information on how the DOL’s rule may affect your business, or to conduct a worker classification audit, contact the experienced attorneys at Luchansky Law.   About Luchansky Law Luchansky Law is a premier labor and employment law firm committed to providing exceptional legal representation and client service. Founded in 2004 by Bruce Luchansky, the firm offers a wide range of legal services to businesses and individuals, focusing on workplace issues, employment disputes, and compliance. Luchansky Law is dedicated to upholding the highest standards of diligence, professionalism, and compassion in its practice. Please call (410) 522-1020, email us at info@luchanskylaw.com, or stop by our office at 606 Bosley Avenue, Suite 3B, Towson, Maryland, 21204.    Resources U.S. Department of Labor – Final Rule on Independent Contractor Classification Fair Labor Standards Act (FLSA) Overview DOL Compliance Assistance Toolkit Worker Classification Under the FLSA Fact Sheet