Today, we explore a pivotal development in employment law that could reshape your workforce structure. Anne-Marie L. Storey, Chair of Rudman Winchell’s employment practice area, sheds light on the recent changes in employment regulations.
On January 9, 2023, the federal Department of Labor (DOL) introduced a final rule, transforming how workers are classified under the Fair Labor Standards Act. It’s important to note that this rule becomes effective on March 11, 2024.
Since 2021, the DOL has utilized two main criteria – the nature and degree of control by the employer and the opportunity for profit or loss for the worker – to determine worker classification, specifically whether someone is an independent contractor or an employee. Departing from this dual-factor approach, the new rule introduces a comprehensive “economic reality” test. It assesses six key factors, offering a nuanced perspective on the working relationship. Let’s delve into these factors and understand their implications for your business.
Here’s a concise breakdown to help you navigate the essentials:
- Nature of Control: Assessing managerial influence over the work.
- Economic Aspects: Delving into financial dynamics and the working relationship.
- Operational Dynamics: Understanding day-to-day activities execution.
- Profit or Loss Opportunities: Examining managerial skill impact on potential gains or losses.
- Skill and Initiative: Recognizing expertise and drive required for the job.
- Permanence of Relationship: Evaluating the duration and stability of the working arrangement.
- Investment in Equipment: Gauging resources invested in tools or materials.
- Integral to Business: Determining the extent to which work contributes to the employer’s business.
Additional factors may also be relevant. Ultimately, the test aims to discern whether the worker is economically dependent on the potential employer or is in business for themselves.
While this rule lacks the weight of law, it provides valuable insights into the DOL’s perspective. Legal challenges may arise, but proactive assessment of current classifications is advisable before the rule takes effect on March 11.
Anticipate potential challenges by reviewing and adjusting your current classifications. Stay ahead of the compliance curve to ensure your workforce aligns with evolving standards.
In this complex legal landscape, we’re more than your attorneys; we’re committed partners. Feel free to reach out for any questions or further clarification.
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