Webinar Recap | DOL's New Independent Contractor Rules Explained

In this webinar, Adams Keegan’s Charles Rodriguez and Brandon Roland provide a comprehensive review of the U.S. Department of Labor's (DOL) Final Independent Contractor Rule, including best practices and myths on differentiating independent contractors and employees in the workplace. In this recording, we also review related common questions and concerns on introductory periods, including making adjustments to the contractor or employee relationship.

Didn’t catch the discussion on March 28? Click here for the full webinar.

Department of Labor’s final rule on independent contractors
The DOL has issued a final rule on independent contractors, effective March 11 2024, replacing informal guidance with a clearer framework. Under the new rule, a totality of circumstances approach is adopted, with the “six-factor economic realities test” being considered.

Employers should pay close attention to these changes, as they may result in more workers being classified as employees, signaling increased scrutiny on independent contractor classifications.

The new standard: Six-factor economic realities test
The DOL’s final rule on independent contractors introduces a clearer standard with a six-factor economic realities test. The following factors collectively determine whether a worker is classified as an independent contractor or an employee, shaping how businesses structure their workforce arrangements.

1. The opportunity for profit and loss depending on managerial skill: Assess whether the worker has the autonomy to negotiate terms, make decisions, and manage investments affecting their earnings.
2. Investments by the worker and the potential employer: Evaluate whether the worker or employer has made substantial investments indicating an employment relationship.
3. The degree of permanence of the work relationship: Determine the extent of the worker's ongoing commitment and exclusivity to the employer, signaling a potential employee status.
4. The nature and degree of control: Examine how much control the employer exercises over the worker's tasks, schedules, supervision, and disciplinary actions.
5. The extent to which the work performance is an integral part of the potential employer's business: Consider whether the work performed is fundamental to the employer's core operations or merely supplemental.
6. The worker’s skill and initiative: Assess whether the worker brings specialized skills, knowledge, or innovation to the job, indicating an independent contractor relationship.

Common past and current practices
Irrelevant factors in determining employment status include the worker's designation, payment method, and verbal or written agreements to be classified as independent contractors. The Fair Labor Standards Act (FLSA) disregards titles or labels, payment methods like off-the-books or 1099 forms, and agreements, emphasizing the substance of the working relationship over formalities.

Whether expressed verbally or through documentation, such agreements hold no weight in classification determinations. Employers must focus on the nature of the relationship and adherence to legal criteria rather than superficial attributes or agreements.

Auditing and best practices
Now is a great time for employers to perform audits of their employee’s classification status, reevaluate practices under the new guidance, and make necessary changes. This will ensure contractor relationships align with regulations, providing clarity on agreements, scope of work, payment terms, and confidentiality.

For businesses leaning towards employee classifications, offering formal employment agreements demonstrates a proactive approach. Conversely, for those maintaining contractor status, reinforcing clear boundaries and agreements is paramount to safeguarding against potential misclassification risks.

The webinar also delved into other subjects, such as state specific standards for the new rule, the National Labor Relations Board’s Joint Employer Rule, and more.

Delve into the entire conversation and give yourself about 50 minutes to become fully engaged in the webinar.