Labor Department Issues New Guidance on Independent Contractor Classification

The Department of Labor’s Wage and Hour Division recently issued guidance on its independent contractor misclassification enforcement. The guidance comes as the 2024 Independent Contractor Rule is facing multiple challenges in federal court, and after Labor has indicated that it is considering rescinding the rule.

The Wage and Hour Division will enforce the Fair Labor Standards Act as interpreted by Fact Sheet #13, issued in July 2008, and FLSA2019-6, an opinion letter issued on April 29, 2019.

Fact Sheet #13 identifies seven factors which determine whether a worker is an independent contractor under the Fair Labor Standards Act, based on factors courts considered significant:

1. The extent to which the services rendered are an integral part of the principal’s business;
2. The permanency of the relationship;
3. The amount of the alleged contractor’s investment in facilities and equipment;
4. The nature and degree of control by the principal;
5. The alleged contractor’s opportunities for profit and loss;
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
7. The degree of independent business organization and operation.

FLSA2019-6 states that service providers are not employees of the platforms that connect those providers with end consumers, based on the factors enumerated above.

For enforcement purposes, there is little substantive difference between the 2024 Independent Contractor Rule and the seven-factor test described in Fact Sheet #13. This new guidance doesn’t change builder best practices, but indicates that the administration may redefine independent contractors in the near future.

The main difference is that the guidance standard examines the extent to which the worker’s business organization and operation are independent from the principal, while the 2024 Independent Contractor rule does not consider business structure.

There is also a difference between Wage and Hour Division enforcement, which is governed by the new guidance, and civil litigation, which is still subject to the 2024 Independent Contractor Rule. There is also a different Fact Sheet #13 which interprets the 2024 Independent Contractor Rule as it applies to civil litigation.

NAHB has been monitoring the Independent Contractor rule as it has evolved and will continue to provide updates.