On January 10, 2024 U.S. Department of Labor published new proposed regulations for identifying whether a worker is to be classified as an independent contractor or as an employee under the Fair Labor Standards Act (FLSA).  Those determined to be “employees” fall under the FLSA’s provisions. The final rule is scheduled to be posted on March 11, 2023. The determination is subject to criteria well beyond whether the worker signed an independent employment contract or not.

What are the FLSA Requirements?

The Fair Labor Standards Act requires employers to pay nonexempt (hourly) employees at least the Federal minimum wage for all hours worked and to pay time and a half for any hours worked in excess of 40 hours in any given week. FLSA also requires employers to maintain certain records regarding employees and prohibits retaliation against employees who are discharged or claim discrimination and file a complaint. The FLSA does not apply to Independent Contractors, and the proposed regulations seek to sharpen the lines between the two more clearly, in line with other provisions, proposed rules, and actions by the courts during 2021 and 2022. The key to determining the difference between employees and independent contractors with respect to the FLSA is called the “Economic Reality Test.”

To be covered by the FLSA’s minimum wage and overtime provision, there must be an employment relationship between the worker and employer, which is not the case with an independent contractor. The Economic Reality Test is whether the worker is economically dependent on the employer for work. If the economic reality shows that the worker is in business for him- or herself, then the person is an independent contractor.

Six Factor To Determine If Employment Relationship Exists:

  1. The worker’s opportunity for profit or loss depending on managerial skill -If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee,
  2. Investments by the worker and the employer – If investments by a worker are capital or entrepreneurial, this indicates independent contractor status,
  3. Permanence of the work relationship – if the work is definite in duration, non-exclusive, project-based, or sporadic based on the worker, this may indicate independent contractor status,
  4. Nature and Degree of Control – If the potential employer sets the worker’s schedule, supervises the performance of the work, or explicitly limits the worker’s ability to work for others, this suggest the worker is an employee,
  5. Whether the work performed is integral to the employer’s business, — when the work they perform is critical, necessary, or central to the potential employer’s principal business it suggests the worker is an employee, and
  6. Skill and initiative – If the worker does not use specialized skills in performing the work or where the worker is dependent on training from the potential employer to perform the work, it suggests the worker is an employee.

If these elements exist, even if the worker has signed a contract to provide services, then he or she is an employee subject to the protections of the FLSA. It doesn’t matter what the employer calls the person, or if the worker receives a form 1099.

Coley has provided guidance to our clients on all manner of compliance with Federal contracting compliance for over 20 years. We understand the crucial nature of regulatory compliance coverage provisions for our clients. Reach out to Coley if you have any questions or concerns regarding your compliance by hello@coleygsa.com, phone at 210.402.6766 or  schedule a call at a time convenient for you.  We keep our eyes on such rules and regulations so that you don’t have to. 

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