USA: Employment Law Alert: New Rules for Worker Classifications

 

2024 has brought significant changes to the standards for classifying workers as exempt employees or independent contractors, avoiding minimum wage and overtime requirements.

Higher FLSA Salary Level Thresholds for Exempt Employee Status – Effective July 1st

As of July 1, 2024, substantially more employees became eligible for minimum wage and overtime requirements as a result of the Department of Labor’s (DOL) increases in the Salary Level Thresholds for exempt status under the Fair Labor Standards Act (FLSA). Final Rule – 29 CFR 541.

Exempt employees must be paid on a predetermined salary basis, regardless of the quality or quantity of their work:

• New Standard Salary Level Threshold - $844 per week ($43,888 annualized)

• New Highly Compensated Employee Total-Compensation Threshold - $132,964 per year, including at least $844 per week

The thresholds will increase again in January 2025, and beginning in July 2027 will be updated every three years based on DOL earnings data.

Action to Take Now: Assess the classifications of all employees and either (i) adjust salaries as needed to meet the minimum threshold, or (ii) reclassify employees who no longer meet the minimum threshold as non-exempt and take the necessary steps to record their worktime and pay overtime as appropriate.

New FLSA Independent Contractor Classification Test

In March 2024, the DOL changed its requirements for a worker to be classified as an independent contractor for minimum wage and overtime purposes.

The old standard focused on two main factors (the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss) out of a set of five factors. The new standard weighs six factors equally to produce a more holistic (totality-of-the-circumstances) assessment of workers’ economic realities and dependence on employers as the basis for determining whether the worker is an employee or an independent contractor, regardless of any agreement between the worker and employer. The new standard is weighted toward finding employee status, so that more workers will have access to minimum wages and overtime pay.

The Final Rule (89 FR 1638) provides a list of the 6 factors necessary to prove independent contractor status, along with commentary explaining how each will be evaluated:

1. Opportunity for profit or loss depending on managerial skill,
2. Investments by the worker and the employer,
3. Permanence of the work relationship,
4. Nature and degree of control,
5. Whether the work performed is integral to the employer’s business, and
6. Skill and initiative.

 

This change is representative of the surge of public opinion (and state law changes) on independent contactor status, and is expected to have significant implications in the construction, transportation, and gig economies as companies navigate the classifications of their workers.

Businesses using independent contractors should review their relationships with workers in light of the new DOL rule, as well as other federal agency rules (e.g., IRS) and applicable state laws and regulations limiting independent contractor status. 

 

For further information, please contact:

Amie Carmack, Partner

Morningstar Law Group, Raleigh

e: acarmack@morningstarlawgroup.com

t: +1 919 590 0394

 

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