In January 2024, the U.S. Department of Labor (DOL) released a final rule (RIN 1235-AA43) that will revise the federal framework for determining whether a worker is an employee or an independent contractor.

The new standard, which became law on March 11, 2024, is important because the Fair Labor Standards Act’s (FSLA) minimum wage and overtime pay protections do not apply to independent contractors, and many observers expect the new rule to result in significantly more workers being classified as employees rather than independent contractors. 

Under the FLSA, companies are required to provide benefits such as minimum wage and overtime to employees, but not to independent contractors. But since the FLSA does not define the term “independent contractor,” the U.S. Department of Labor (DOL) is responsible for interpreting how and when workers are classified as independent contractors instead of employees. Ultimately, the DOL’s definition of an “independent contractor” depends on which party controls the White House.

During the Trump Administration, two core factors dictated whether a worker was an employee or an independent contractor: (1) the nature and degree of the worker's control over the work performed; and (2) the worker's opportunity for profit or loss.

Under the Biden Administration, the DOL finalized new guidelines for defining an “independent contractor” that restored interpretations from the Obama Administration. The new Biden-era rule restores a “totality-of-the-circumstances” analysis for determining independent contractor status using six factors that do not have a predetermined weight. Those factors are:

1. the nature and degree of the worker's control over the work performed,
2. the worker's opportunity for profit or loss,
3. the amount of skill required in the work,
4. the degree of permanence of the working relationship,
5. the worker's investment in equipment or materials required for the task,
6. the extent to which the service rendered is an integral part of the employer's business.

For more information about the rule, please click here.

There are large concerns that the new rule is confusing, difficult to apply, and will invite unnecessary litigation. Because of this, the National Lumber & Building Material Dealers Association (NLBMDA) previously submitted extensive comments to the DOL on the independent contractor rule and is working with federal lawmakers to advance legislation that would reign in the DOL’s authority under the FLSA. NLBMDA is also publicly supporting a Congressional Review Act resolution that nullifies the DOL’s new independent contractor rule.

Members with questions should contact NLBMDA’s Chief Lobbyist Jacob Carter at jacob@dealer.org.