On Jan. 6, the Department of Labor (DOL) issued the Final Rule clarifying the standard for independent contractor classification. The Final Rule, effective March 8, 2021, adopts the regulations largely as proposed in the department’s Sept. 22, 2020, Proposed Rule. The Final Rule adds a new Part 795 to the Fair Labor Standards Act (FLSA) titled “Employee or Independent Contractor Classification under the Fair Labor Standards Act.” While this is welcomed news for employers, the future of the Final Rule under the Biden Administration is uncertain. Further, the Final Rule is not binding on state governments and therefore will not impact local or state laws on the issue. Also, employers should be aware that the regulation only applies to laws which the DOL has authority to regulate and therefore does not change the IRS Code or definitions of “employee” under Title VII or other employment laws.

The Final Rule is the department’s first regulation on classification of independent contractors. Until now, there has been confusion on which factors to apply and whether any one factor weighed more than another as courts have been wildly inconsistent. The Final Rule, once effective, will be the department’s sole authority on the topic and will streamline the analysis by expressly identifying the most important elements of what makes a worker an independent contractor versus an employee.