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The Federal Department of Labor Reinstates Longstanding Independent Contractor Test

The U.S. Department of Labor (DOL) has published a final rule for independent contractor classification under the federal Fair Labor Standards Act (FLSA). Beginning on March 11, 2024, the rule will effectively reinstate the longstanding version of the “economic reality” test the DOL previously used. This test uses a multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee who is economically dependent on the employer for work, or an independent contractor (IC) who is in business for themself.

Although this version of the economic reality test hasn’t been used by the DOL for the last few years, many state agencies and courts continued to use it, and the IRS’s test for IC classification is very similar, so most employers likely did not take action to reclassify employees during the test’s brief DOL hiatus. That said, it never hurts to reevaluate your classifications. As a refresher, the economic reality test looks at the following six factors:

  • The worker’s opportunity for profit or loss
  • The relative investments by the worker and the employer
  • The degree of permanence of the work relationship
  • The nature and degree of control an employer has over the person’s work
  • Whether the work the person does is essential to the employer’s business
  • The worker’s skill and initiative

Keep in mind that some states have more stringent tests (e.g., the ABC test in California), and workers in those states will need to pass the state’s test in order to be properly classified as independent contractors.

FCRA Summary Updated

On March 20, 2023, the Consumer Financial Protection Bureau (CFPB) issued a final rule which, among other things, updates their Summary of Your Rights Under the Fair Credit Reporting Act (FCRA) and replaces the 2018 version. The summary details the major rights guaranteed under the act. For instance, employers that use a credit report to deny employment must provide the applicant with the name, address, and phone number of the agency that provided the credit report information. The final rule also makes non-substantive changes to the act to include removing outdated business references.

The final rule is effective April 19, 2023, but the mandatory compliance date is March 20, 2024.

Federal: E-Verify+ Announced

On February 21, 2024, the release of E-Verify+ was announced. According to the press release, “the ’plus‘ represents the benefits the new service provides to employers and employees . . . [because it will] add efficiencies and [give] employees more control over their personal information.”

E-Verify+ was designed to streamline the Form I-9 and employment eligibility verification process and is scheduled to be available later this year. In the spring, the service will be released as a pilot program, and users will have the opportunity to give feedback.

HR Services Team
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