Aaron Holt, a labor and employment attorney with Cozen O’Connor, explains the latest ruling by the U.S. Department of Labor on the definition of an “employee” versus an “independent contractor.”

In January, the Labor Department finalized its latest interpretation of employees and independent contractors under the Fair Labor Standards Act, which doesn’t cover the latter. The new guidance pushes aside the notion of “theoretical control” of a worker by a nominal employer, in favor of “actual practice.” In other words, what’s the nature of the specific relationship between a given employer and employee? Who is providing the manner, means and equipment necessary for the worker in question to do the job? How has the employer treated similar workers in the past? Has its policy been consistent among workers and departments?

The guidelines are broad, but individual situations must be reviewed on a case-by-case basis, says Holt. Complicating matters further are varying laws passed by states. If a state mandates a higher standard, as in the case of setting the minimum wage, then that standard must be met. Holt expects states and municipalities to continue to pass laws that are stricter than federal standards regarding the classification of workers. Employers will need to respond in creative ways, whether that means adjusting to local rules or moving operations out of a given area entirely.

The rules currently in effect at the federal level are by no means set in stone. Holt predicts that the Biden Administration will seek yet another interpretation of the Fair Labor Standards Act, one that favors the so-called independent contractor being classified as an employee, and therefore subject to benefits and resources that are otherwise restricted to that type of worker. “Reading the tea leaves,” he says, “that’s a reasonable suspicion.”