Worker Classification: 2024 Rule Clarifies Independent Contractor Status

On January 10, 2024, the United States Department of Labor (DOL) revised its guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). This final rule may offer clarification that ministries will find useful when correctly classifying a worker. The rule goes into effect March 11, 2024. The rule goes into effect March 11, 2024.

Impact: Independent contractor status and Christian employers

The new DOL rule could lead to serious consequences for employers who misclassify their workers. This rule supersedes the 2021 previously introduced regulation, offering a new analysis for determining whether a worker qualifies as an independent contractor or an employee under the federal FLSA.¹

Who’s impacted? Christian employers that regularly hire and compensate workers as independent contractors are the most likely to be impacted by this rule change. Misclassifying workers as independent contractors can expose Christian employers to potential liabilities, including the obligation to cover back wages, benefits, and additional penalties under federal and state laws.

Overview: The 2024 worker classification rule

The previous worker classification rule outlined five economic reality factors to determine if a worker is an employee or an independent contractor under the FLSA, highlighting two core factors as more important than others:²

The extent of control over the work, and
The worker's chance for profit or loss.

The 2024 rule, however, adopts the totality of the circumstances analysis. Each economic reality factor is given full consideration, with no one factor having more weight than another in determining whether a worker falls into one status or the other.³

For the 2024 rule, these six economic reality factors are:⁴

Opportunity for profit or loss depending on managerial skill.
Investments by the worker and the potential employer.
Degree of permanence of the work relationship.
Nature and degree of control.
Extent to which the work performed is an integral part of the potential employer’s business.
Skill and initiative.

Be proactive: How to prepare for the March 11 deadline

The following proactive measures can help Christian employers prepare for when the new rule goes into effect:

Conduct comprehensive audits of all existing or long-term workers.
Evaluate all independent contractor agreements currently in place.
Analyze the status of current and long-term independent contractors under both the 2021 and 2024 rules.
Formulate a robust compliance strategy in line with the DOL's updated regulation.
Engage with a qualified local attorney to gain insights and guidance on the new regulations and any applicable state or local laws that need to be considered or adjusted in initiating compliance strategy.
Train staff members on the worker classification process and compliance strategy.
Developing a record retention policy for all relevant records.

By taking these proactive measures, Christian employers can safeguard their organizations against potential legal challenges and ensure compliance with the evolving labor laws.

Other considerations: FLSA vs. IRC

The DOL's rule and analysis is specifically for FLSA. The Internal Revenue Code (IRC), for example, utilizes a different analysis in determining whether a worker is an independent contractor or employee. To learn more about this analysis, read Use Caution When Classifying Workers for Tax Purposes.

These differences in criteria, some of which may be state-specific, can lead to situations where a worker is classified as an independent contractor under one set of rules and an employee under the other.

That’s why it is important for all Christian employers to ensure they are classifying workers correctly. Work with a locally licensed tax attorney to ensure compliance with all relevant tax and labor laws.

Related resources

1 “Final Rule: Employee or Independent Contractor Classification Under the Fair Labor Standards Act, RIN 1235-AA43.” U.S. Department of Labor, Wage and Hour Division. Accessed 6 February 2024. https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking.
2 Final Rule. U.S. DOL.
3 “Employee or Independent Contractor Classification Under the Fair Labor Standards Act—A Rule by the Wage and Hour Division.” National Archives Federal Register, 10 January 2024. https://www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act.
4 “Small Entity Compliance Guide.” U.S. Department of Labor, Wage and Hour Division. Accessed 6 February 2024, https://www.dol.gov/agencies/whd/government-contracts/small-entity-compliance-guide.

Published February 7, 2024.

The information we provide is intended to be helpful, but it does not constitute legal or financial advice and is not a substitute for advice from a licensed attorney or CPA. We strongly encourage you to regularly consult with a local attorney and CPA as part of your risk management program.