Effective March 11, 2024, the U.S. Department of Labor will implement a Final Rule that revises its guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The final rule replaces an earlier rule with an analysis for determining employee or independent contractor status.
The Finale Rule focuses on an “economic reality test” where the facts of a given situation determine if a worker is economically dependent on an employer.
The circumstances of the employment relationship are critical and rely on analysis of six factors for businesses to use when making a determination. The six factors include the following:
- Opportunity for profit or loss, depending on managerial skill
- Investments by the worker and the potential employer
- The degree of permanence of the work relationship
- The nature and degree of control
- The extent to which the work is performed is an integral part of the potential employer’s business
- Skill and initiative
Each factor must be thoroughly analyzed to reach a final decision as to whether an individual is truly in business for themselves or if they are economically dependent on the employer for work. The final rule and guidance can be found HERE.
New Jersey’s Misclassification Law (N.J.S.A. 43:21-19(i)6(A)(B)(C)), commonly called the “ABC Test” presume individuals to be employees, unless the employer can prove all three prongs of the test:
- The individual has been and will continue to be free from control or direction over performance of the service, both under a contract of service and in fact.
- The service is either outside the usual course of the business for which such service is performed, or the service is performed outside of all the places of business of the enterprise for which such service is performed.
- The individual customarily engaged in an independently established trade, occupation, profession, or business.
NJ CAR previously issued an advisory in 2021 about laws enacted to strengthen the New Jersey Worker Misclassification Law.
On July 8, 2021, Governor Murphy signed four (4) bills into law to curb employee misclassification.
The bills, A5890, A5891, A5892 and A1171, cumulatively aim to crack down on the practice of improperly classifying an employee as an independent contractor. Overall, the laws empower the New Jersey Department of Labor to take action against employers who misclassify employees.
It is critical that dealerships and their Human Resources professionals consult with their attorney and pay close attention to the DOL’s Final Rule and New Jersey’s laws surrounding worker misclassification.
If dealers have questions about this topic or any other questions, they should contact Greyson P. Hannigan, NJ CAR’s Director of Legal & Regulatory Affairs at (609) 883-5056, Ext. 340 or via email at [email protected].