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On January 6, 2021, the U.S. Department of Labor issued its final rule on Independent Contractor Status under the Fair Labor Standard Act (FLSA) outlining how employers can properly classify workers as independent contractors, instead of employees, which in practice means that the worker does not have to be paid minimum wage or overtime. This Rule, following a 30-day comment period during which the Department received over 1,800 comments, is a boon to employers as it provides clarity and more leeway in defining who is an independent contractor.
The Rule explains that the five-factor economic realities test governs the analysis of whether a worker can properly be classified as an independent contractor. This test is less restrictive on employers than those used in some states, such as California’s use of the ABC test. Under the five-factor economic realities test, the following is considered: