On January 9, 2024, the United States Department of Labor (USDOL) announced a final rule revising criteria considered for classifying individuals as independent contractors under the Fair Labor Standards Act (FLSA). The official announcement is available on the USDOL’s News Release website, along with FAQs that provide helpful information for employers.

The updated rule takes effect on March 11, 2024.

Under the previous rule, independent contractor status heavily focused on the nature and degree of control exerted by the company over the individual’s work and the individual’s opportunity for profit or loss.  Under the new rules, employers must evaluate the “economic reality” and “totality of circumstances” of the relationship between the company and individual and assess the following six factors:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. Degree of performance of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative.

All six factors must be considered when determining whether an individual is classified as an independent contractor for your company. In addition, any other relevant factor indicating economic dependence on the company (employee) or whether the individual is in business for themselves (independent contractor) should be considered.

Implications for Employers:

• Increased Scrutiny: The new rule is expected to make classifying workers as independent contractors more challenging, potentially classifying more individuals as employees.
• Review of Current Contracts: Businesses should review their existing relationships and agreements with independent contractors to ensure workers are properly classified.\
• State and Federal Laws: It's important to note that this rule affects independent contractor status under FLSA, which primarily relates to wage and hour claims for minimum wage and overtime payments. Other independent contractor laws, such as those governed by the Internal Revenue Service, National Labor Relations Board, and the state of Hawaii, remain the same.

Hawaii Employers Council is revising resources regarding independent contractors to include this updated information. If you have questions on the rules relating to independent contractors, please reach out to your HR Consultant.