We’ve previously written about the difficulties and consequences of worker misclassification. This post is to address the recent change by the federal Department of Labor (DOL), which regulates the Fair Labor Standards Act (FLSA). The FLSA requires payment of (a) the federal minimum wage and (b) unless an exemption applies, overtime (1.5x) pay for hours worked in excess of forty per week.

What is the Updated FLSA Worker Classification Rule for 2024?

While the new DOL rule does shift regulatory guidance toward a finding of employment, it is not a seismic shift. In fact, it is simply a return to what the rule was prior to a 2021 change (made during the Trump administration). 

In sum, the new rule returns to a ​“six-factor test,” with no particular factor carrying more weight than any other. The six factors are:

  1. The worker’s opportunity for profit or loss;
  2. Whether the worker has made investments in their work; 
  3. The degree of permanence of the relationship;
  4. The nature and degree of control over performance of the work and the relationship;
  5. The extent to which the work performed is an integral part of the potential employer’s business; and
  6. The skill and initiative of the worker.

This test is similar to other worker classification tests, but distinct from others. For example, California’s relatively recent AB5 law utilizes the ​“ABC” test, which makes it difficult to impossible (unless one of the exemptions applies) to classify a California worker as an independent contractor. 

This is because of the ​“B” factor in the ABC test, which requires that a worker ​“perform work that is outside the usual course of the hiring entity’s business.” In other words, if your business is providing web design and development for clients, and you engage a freelance designer or developer located in California to assist with a client project, that person is your employee (at least for California unemployment tax purposes, though it is not really possible to classify someone as an employee for one purpose and an independent contractor for others).

Without a worker-specific review of the applicable laws and regulations (and their disparate tests), it isn’t possible to say whether any particular engagement is properly structured as an independent contractor relationship. If you have any uncertainty about how you have addressed classification or how you intend to use contractors in the future, please consult Matchstick for guidance.

Want to know more? Access our guide about misclassification.