Building on a public consultation held in 2023, the Department of Labor (DOL) has finalized a new rule addressing whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). Recognizing the impact on our community, ACT | The App Association has been engaged in advocacy on this issue for some time. Now that the rule is finalized, we’re recapping how we got here and what our members can expect moving forward.

Background

The FLSA ensures minimum wage and overtime pay for eligible employees working more than 40 hours per week. However, independent contractors, distinct from “employees,” do not benefit from these protections. As the federal agency implementing the FLSA, the DOL has a fair amount of latitude in setting the rules for how one determines whether a worker is an employee versus an independent contractor.

The new DOL rule identifies “economic dependence” as the key determinant for independent contractor status, along with assessing whether the worker functions as an independent business. The new rule sets six equally-applied factors to assess economic dependence: (1) opportunity for profit or loss depending on managerial skills, (2) investments by the worker and the potential employer, (3) degree of permanence of the work relationship, (4) nature and degree of control that the employer has over the work relationship, (5) extent to which the work performed is an integral part of the potential employer’s business and (6) skill and initiative of the worker.

Although it may seem like this new test tilts to favor employee status, the actual ramifications of the rule on the independent contractor landscape are still uncertain. For example, it is expected that the rule will face legal challenges in the courts, and some new norms will emerge under the rule as time goes on. However, the DOL’s changes could most significantly affect independent contractors heavily reliant on a single business for their primary source of income, as well as companies leveraging legitimate independent contractor arrangements for core business operations.

It is also important to note that the DOL’s final rule only defines independent contractor status under the FLSA and does not affect definitions under other federal laws like the National Labor Relations Act and state wage and hour laws.

Next Steps

App Association members should conduct comprehensive evaluations of their hiring practices and workforce, which may entail reclassifying contractors or workers and adjusting their roles and organizational practices accordingly. The App Association will continue to actively monitor the impact of this rule, and others impacting our members’ ability to hire and grow.

Do you want to share your views on this policy change and how it affects you? We want to hear from you! Reach out to Brad at [email protected]