The U.S. Department of Labor (DOL) published its final rule on independent contractor classification consisting of a six-part “economic reality” test and formally repealed the 2021 “core factors” test. The final rule is to become effective on March 11, 2024.

The repealed core factors test prescribed a five-factor test to guide the analysis, two of which were designated as “core factors” carrying more weight in the inquiry: 1) nature and degree of control over the work, and 2) the worker’s opportunity for profit or loss.

The new six-factor economic reality test looks broadly to the “totality of the circumstances” to determine whether a worker is generally considered an independent contractor (IC) or employee (E) under the Fair Labor Standards Act (FLSA).  

1. Opportunity for profit or loss depending on managerial skill
   • E: a worker has no opportunity for profit or loss
   • IC: worker has the ability to negotiate job pay and/or timing of work
2. Investments by the worker and the potential employer
   • E: investments/costs imposed by a potential employer
   • IC: investments/costs increase a worker’s ability to do more or different types of work or extend market
3. Degree of permanence of the work relationship
   • E: exclusive, indefinite, or continuous work relationships
   • IC: non-exclusive, sporadic and project-based work
4. Nature and degree of control
   • E: business maintains the ability to control performance and all economic aspects of the relationship, scheduling, supervision, and/or rates (Note: supervision may be imposed through the use of tracking or remote monitoring technology) and need not be in-person
   • actions taken by a business to comply with specific, applicable laws or regulations are not indicative of control; however, if the actions serve the business’s “own compliance methods, safety, quality control, or contractual or customer service standards,” such actions are more indicative of control
5. Extent to which the work performed is an integral part of the employer’s business
   • E: when the work is critical, necessary, or central to the business
   • the key question is whether the work or function performed is integral to the business, not whether the individual worker is an integral part of the business
6. Skill and initiative
   • E: a worker is dependent on training from the business to perform the work
   • IC:  a worker is using his or her specialized skills and taking business-like, entrepreneurial initiative to advance his or her independent business.
   • IC:  a worker possesses specialized skills and demonstrates entrepreneurial judgment (Note: specialized skill alone is not sufficient, but must be used in connection with business-like initiative)