The U.S. Department of Labor (DOL) released its final ruling determining employee or independent contractor classification under the Fair Labor Standards Act. The final rule largely mirrors the DOL’s proposed rule and requires companies to weigh a variety of economic factors to determine whether a worker is an employee or an independent contractor.

The final rule takes effect on March 11.

The agency said the new rule uses six factors to guide a worker’s relationship with an employer:

1. Any opportunity for profit or loss a worker might have.
2. The financial stake and nature of any resources a worker has invested in the work.
3. The degree of permanence of the work relationship.
4. How much control an employer has over the person’s work.
5. Whether the work the person does is essential to the employer’s business.
6. The worker’s skill and initiative.

The final rule rescinds a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight in determining the status of independent contractors. Under the new rule, employers would use the six guiding factors and a “totality-of-the-circumstances analysis,” said SHRM (Society for Human Resource Management), in which none of the factors carry greater weight.

In December 2022, NACS filed comments with DOL on its proposal to replace the existing regulations surrounding the classification of certain workers as independent contractors.

In the comments, NACS General Counsel Doug Kantor wrote: “NACS is concerned that the proposed rule changes legal standards for the determination of whether or not a worker is a contractor or an employee in ways that will disadvantage small businesses, create legal uncertainty, harm beneficial contracting relationships and undermine compliance with other laws.”

The new ruling will make it harder for companies to classify workers as independent contractors, a policy change that’s being closely followed by major gig economy players including Uber and Lyft, according to Bloomberg Law.
 

In addition, the rule is widely expected to increase labor costs for businesses in industries that rely on contract labor or freelancers, such as trucking, manufacturing, healthcare and app-based gig services, reported Reuters.

Business groups and Republican lawmakers strongly criticized the rule, saying it will cause millions of workers to lose opportunities to earn money and would create confusion that will spur costly litigation.

U.S. Senator Bill Cassidy, a Republican from Louisiana, said in a statement that he would introduce a resolution to repeal the rule.

And, according to Reuters, Marc Freedman, vice president at the U.S. Chamber of Commerce, said in a statement the agency was “making matters worse, the rule is completely unnecessary, as the Department continues to report success in cracking down on bad actors that are misclassifying workers," Freedman added that the Chamber, the largest U.S. business group, is considering challenging the rule in court.