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New DOL Independent Contractor Test

employee vs. independent contractor

The Department of Labor (DOL) has issued a new rule/test, effective March 11, 2024, for determining employee (EE) or independent contractor (IC) classification under the Fair Labor Standards Act (FLSA).

The DOL defines an “independent contractor” as a worker who is not economically dependent on an employer for work but is instead in business for his/her self.

Courts and the DOL have historically conducted a totality-of-the-circumstances analysis, using multiple factors to determine whether a worker is an EE or IC, with no factor having predetermined weight. That changed, however, in 2021 when the DOL issued a 5-factor rule, but which designated two - the nature and degree of control over the work and the worker's opportunity for profit or loss - as “core factors” that essentially created a 2 factor test.

But no more. The DOL has rescinded the 2021 rule, returning to a totality-of-the-circumstances analysis where economic dependence is the ultimate inquiry. Under the new rule, an employee is someone who, as a matter of economic reality, is economically dependent on an employer for work—not for income.

There are 6 factors (plus an “other factors” category) in the new test:

1.       Opportunity for Profit or Loss (§ 795.110(b)(1)). Does the worker exercise managerial skill that affects his/her economic success or failure in performing the work, such as negotiating fees, accepting or declining work, marketing to expand his/her business.

2.       Investments by the Worker and Potential Employer (§ 795.110(b)(2)). This is more than the worker providing tools and equipment to perform specific tasks but instead looks for investments that are capital or entrepreneurial in nature.

3.       Degree of Permanence of the Work Relationship (§ 795.110(b)(3)). Is the work is of a finite or infinite nature or time, exclusivity issues, continuity v sporadic periods of work.

4.       Nature and Degree of Control (§ 795.110(b)(4)). Previously a “core” factor, does the worker enjoys substantial control over key aspects of performing the work, such as setting schedules, controlling workload, and the ability to work for more than one “employer.”

5.       Extent to Which the Work Performed Is an Integral Part of the Potential Employer's Business (§ 795.110(b)(5)). While somewhat circular in its analysis, examples offered by the DOL include the difference between an accountant that does a business’ taxes (IC) and the employee who performs the work that generates the income (EE), and the coffee shop barista (EE) compared to the window washer (IC).

6.       Skill and Initiative (§ 795.110(b)(6)). Does the worker have specialized skills to perform the work (IC) or whether is he dependent on training from the employer (EE).

7.       Additional Factors (§ 795.110(b)(7)). Additional factors may also be considered that are pertinent to the analysis of worker classification.

What does this mean for Texas contractors Texas? Although denied by the DOL, IC status (in Texas and across the country) is generally disfavored when it stands in the way of agencies collecting taxes, including unemployment taxes and providing insurance and FLSA benefits.  So use care, and consult with your attorney, regarding what business model may be best for your business – at least from a statutory compliance stand. 

Karen Ensley, Board Certified Construction Law Attorney

Managing Partner

Ensley Benitez Law, PC

Ensley Benitez Law PC

For more information contact or 469-983-6500

Note the information provided herein is educational in nature only. It does not constitute specific legal advise and its transmission does not form an attorney client relationship. We recommend you consult an attorney with specific questions on the application - or not - of the information provided to your particular circumstances.


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