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Who’s An Independent Contractor Under New Rules?
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Business owners need to ensure workers are properly classified under new standards.
Many businesses rely on both employees and independent contractors. A new rule from the U.S. Department of Labor changes the standard for who can be considered an independent contractor. Here’s what businesses need to know to be sure workers are classified correctly.
Why the rule was made
The Department of Labor says the rule was created to keep the employee-or-independent contractor analysis consistent with caselaw, as well as “To combat employee misclassification, a serious problem that impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy at-large.”
Determining if a worker is an employee or independent contractor
Instead of the “ABC” test formerly used, an “economic reality” test will be used to determine if a worker is an employee or an independent contractor. No one factor is determinative, according to the U.S. Department of Labor.
The six factors used to analyze employee or contractor status are:
- Opportunity for profit or loss depending on managerial skill
- Investments by the worker and the potential employer
- Degree of permanence of the work relationship
- Nature and degree of control
- Extent to which the work performed is an integral part of the potential employer’s business
- Skill and initiative
“The new ‘independent contractor’ rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor,” the Department of Labor said in its press release announcing the rule.
When the rule becomes effective
The new goes into effect March 11, 2024. It rescinds the 2021 Independent Contractor rule.
Where to learn more
The Department of Labor’s FAQs page provides greater detail on classifying workers as employees or independent contractors.
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