New rule for determining
"Employee" or "Independent Contractor" Classification

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The U.S. Department of Labor is modifying Wage and Hour Division regulations to replace its analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (the "Act") with an analysis that is more consistent with judicial precedent and the Act's text and purpose.  Here is a summary

Bottom Line

• Under the new rule the focus is now on the "economic realities" of the relationship be between the worker and the employer.  The includes examining the degree of the worker's control over the work, the worker's opportunity for profit or loss, and the investments by the worker and employer.


• In short:


• Is the worker economically dependent on the employer for work, OR
• Is the worker in business for themselves

Economic dependence as the ultimate inquiry

• A worker is an "employee" under the Act who, as a matter of economic reality, is economically dependent on an employer for work


• A worker is an "independent contractor" if the worker is, as a matter of economic reality, a business unto himself or herself

In order to determine economic dependence, multiple factors assessing the economic realities of the working relationship are used.  These factors are tools or guides to conduct a totality-of-the-circumstances analysis  This means that the outcome of the analysis does not depend on isolated factors but rather upon the circumstances of the whole activity to answer the question of whether the worker is economically dependent on the potential employer for work or is in business for themselves.

"Economic reality" factors

(1)  Opportunity for profit or loss depending on managerial skill.

(2)  Investments by the worker that are capital or entrepreneurial in nature.


• Costs imposed on a worker unilaterally by the employer for tools and equipment to perform a specific job are not evidence of capital or entrepreneurial investment

(3)  Degree of permanence of the work relationship

(4)  Nature and degree of control.

(5)  Extent to which the work performed is an integral part of the employer's business

(6)  Skill and initiative.


• This factor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.  This factor indicates employee status where the worker does not use specialized skills in performing the work or where the worker is dependent on training from the potential employer to perform the work

(7)  Additional factors


• Additional factors may be relevant in determining whether the worker is an employee or independent contractor if the factors in some way indicate whether the worker is in business for himself/herself, as opposed to being economically dependent on the employer for work