U.S. Department of Labor has released a final rule clarifying the difference between an independent contractor and a traditional employee under the Fair Standards Labor Act (FSLA). After implementation, this rule will protect freelancers by providing much-needed clarity and flexibility for American workers and businesses alike.
“This rule brings long-needed clarity for American workers and employers,” said U.S. Secretary of Labor Eugene Scalia. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”
The rule includes several criteria designed to clarify whether or not a worker has independent contractor status. First, the rule contains an “economic reality” test to determine whether an individual works for himself or herself (as an independent contractor) or an employer (as an employee).
Next, the rule identifies two “core factors” that help determine an individual’s status as an independent contractor or employee. The first is the nature and degree of control that the individual has over the work itself, such as the ability to set a schedule, choose assignments, or work with little or no supervision. The second is the opportunity for profit or loss based on the individual’s investment or initiative.
In situations where the two core factors do not point to the same worker classification, the rule contains three additional guidelines to help determine an individual’s status, which are:
- The amount of skill required to do the work
- The depth of working relationship between the individual and potential employer
- Whether or not the work is part of an “integrated unit of production,” i.e. if an individual works in a situation roughly equivalent to a production line.
By clarifying the tests that determine whether or not an individual is an independent contractor or employee, this rule will simplify compliance for American businesses, reduce worker misclassification, and increase flexibility for American workers. ATR supports this rule.