The Department of Labor (DOL) is keeping employers on their toes this year as they seek to clarify existing law and protect employees from unfair labor practices. Two significant rulings have been made recently that affect how individuals are classified and when they are guaranteed overtime pay.

Whether you’re an employer making sure you’re staying in compliance, or an employee entering into a new employment relationship, read on for more information about these two new rulings.

 

The Final Rule: Determining Employee vs. Independent Contractor Status

In March 2024, the DOL issued a final rule to clarify how workers are classified, replacing a previous ruling from 2021. The distinction between employees and independent contractors has historically been complex, with courts typically considering the “economic reality” of the relationship between employer and individual. However, interpretations have varied, leading to inconsistencies in outcomes.

The 2021 ruling faced multiple challenges, prompting the DOL to rescind it and introduce the current final rule, effective March 11, 2024. The new rule outlines six factors to determine whether an individual is an employee or independent contractor, with no single factor carrying greater weight than others. These factors are:

  1. Opportunity for profit or loss depending on managerial skill
  2. Investments by the worker and the potential employer
  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 potential employer’s business
  6. Skill and initiative

Despite this multifactor approach, the DOL emphasizes that “economic dependence” is the key consideration in determining classification. For example, an independent contractor working for one employer might be misclassified and should really be an employee. If they’ve set up their own business entity, such as an LLC, that may point to them being properly classified. However, neither scenario guarantees a particular classification.

It’s important to talk to your attorney to ensure that the totality of the situation is taken into account, and weigh the factors appropriately to your situation to determine the best course of action. Although this is a “final” rule, future legal challenges may follow, and other updates may take effect in the coming months or years as courts further define the rule’s meaning and other policymakers consider revisions. It is important to regularly evaluate your contractor-vs.-employee classifications.

 

A New Overtime Rule Is Coming Soon

The DOL also plans to release a new overtime rule in April, 2024, expected to take effect as early as June.

Key provisions include raising the salary and compensation thresholds, resulting in an estimated additional 3.6 million Americans being eligible for overtime pay. The threshold for standard employees is set at under $55,000, while highly-compensated employees must earn nearly $144,000 to be exempt. Additionally, the rule includes automatic updates to these thresholds every three years based on current wage data.

Employers should review all employees, either reclassifying them to avoid overtime rules or adjusting salaries to meet the new thresholds. If employees are exempt (employed in an executive, administrative, or professional capacity), it’s important to make sure they’re paid on a salary basis and primarily perform exempt job duties.

This is not yet a final rule, and legal challenges are expected. But employers should plan ahead in order to ensure compliance with the law as proposed.

Like most employment law issues, both of the DOL actions summarized here can be more complicated than described in this overview. If you may be affected by either ruling, give us a call to make sure you’re moving forward confidently under the applicable regulations. As always, THK is following these rules closely, and we will provide any updates as they come.

 

Michael J. Hays, Business Counsel & Partner, THK Law, LLP

Author: Michael J. Hays is a civil litigation attorney and Partner at THK Law, LLP. His practice areas include employment law, business transactions, and real estate law. Michael is licensed to practice in Indiana and Michigan.

You can contact Michael by calling 574.232.3538 or email mhays@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.