A U.S. Department of Labor final rule that is intended to encourage reclassification of certain independent contractors as employees under the Fair Labor Standards Act takes effect on March 11. With a change in status, former independent contractors will receive minimum wage and overtime pay protections. As employees, some workers may also become eligible for health care, paid leave and other benefits, and for workers’ compensation coverage in the event of a work-related injury or illness.
To determine employment status, the rule directs employers to consider these factors:
- Economic reality – the opportunity for profit or loss depending on managerial skills.
- Investments by the worker and the potential employer – whether capital or entrepreneurial in nature.
- Degree of permanence of the work relationship – employee status is more likely when the relationship is indefinite in duration, continuous or exclusive.
- Nature and degree of control – considers an employer’s control in the employment relationship, including salary, supervision and work schedule.
- Extent to which the work performed is an integral part of the employer’s business – necessitates a decision on whether a contract worker performs tasks that are critical to business operations.
- Skill and initiative – assessment of the need for specialized skills to do the work in connection with “business-like initiative.”
In addition to being subject to the new federal rule, covered employers are encouraged to review applicable state laws that apply to worker classifications to reduce their legal liability exposure risk.