U.S. Department of Labor Unveils Final Rule on Determining Independent Contractor Status
The Final Rule by the Labor Department has now established a six-factor test for determining whether a worker is an employee or an independent contractor.
It is critical to note that the Final Rule differs significantly from prior DOL guidance and other rules governing independent contractors that were issued in 2021.
The Final Rule took effect on March 11, 2024.
The Final Rule applies the following six factors to analyze employee or independent contractor status under the FLSA:
Worker opportunity for profit and loss
Investments by the worker and potential employer
The degree of permanence of the work relationship
The nature and degree of control over performance of the work and working relationship
The extent to which the work performed is an integral part of the potential employer’s business
The skill and initiative of the worker
These are more detailed in the Regulations themselves.
According to the DOL, the Final Rule is intended to "reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves."
Companies should immediately review and update their policies.
The failure to properly classify persons as an employee or independent contractor can result in extensive penalties, fees, and past payment of withholding social security taxes.
It is critical to reach out and discuss this issue with a professional.
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
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