Effective March 11, the U.S. Department of Labor (DOL) reinstated its independent contractor rule, impacting how businesses classify workers. This change rescinds a 2021 rule thatemphasized two core factors—control over work and opportunity for profit or loss. The new rule adopts a totality-of-the-circumstances analysis, where no single factor holds greater weight.
Understanding the Independent Contractor Test
Classifying a worker as an independent contractor or employee can be complex, as different laws use different tests at both federal and state levels. Despite this complexity, a common factor across most tests is the level of control the hiring entity has over the contractor and whether the contractor operates their own business or has other clients.
Under the Fair Labor Standards Act (FLSA), employees are entitled to minimum wage, overtime pay, and other benefits, whereas independent contractors are not. Independent contractors typically have more flexibility to set their own schedules and work for multiple companies.
Key Factors in the New Rule:
- The degree to which the employer controls how the work is done.
- The worker’s opportunity for profit or loss.
- The amount of skill and initiative required for the work.
- The degree of permanence of the working relationship.
- The worker’ investment in equipment or materials required for the task.
- The extent to which the service rendered is an integral part of the employer’s business.
How to Mitigate Misclassification Risks
To reduce the risk of misclassification, internal audits are essential. Companies should review all1099 tax arrangement classifications, understand when and how independent contractors are engaged, and assess the types of agreements in use.
The reinstatement of the independent contractor rule requires businesses to carefully evaluate their worker classifications and ensure compliance with the new DOL guidelines.
Ensure Compliance with Confidence
Don’t leave your worker classifications to chance. Partner with aHRrow to conduct a thorough audit and stay compliant with the latest DOL regulations. Our team of HR experts is ready to guide you through every step.
Contact us today to safeguard your business and ensure you’re meeting the new requirements with ease.