New DOL Rule Independent Contractor Classifications

New Department Of Labor Rule in Effect March 11 Affects Employee/Independent Contractor Classifications

Businesses relying on independent contractors need to know about the US Department of Labor’s new 6-factor test for determining worker classification under the Fair Labor Standards Act. This test narrows who is an “independent contractor,” and goes into effect March 11, 2024.

Key Changes in Worker Classification: New 6 Factor Test Used In Determining Worker Status. Factors considered:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative.

 

DOL says these factors aren’t exhaustive. Instead, the analysis uses a totality-of-the-circumstances “economic reality” approach, allowing consideration of other relevant factors that “in some way indicate whether the worker is in business for themself.” Where the worker is dependent on the employer for work, they will not qualify as an independent contractor under this rule. Importantly, only the courts, federal and state agencies decide classification, not the employer or the worker.

Diverse Classification Standards:

Notably, this rule solely addresses DOL’s interpretation under the FLSA and does not supersede other law, such as state “ABC Tests,” IRS interpretations of common law, etc.

Serious Consequences for Misclassifying Workers:

• Owing double the worker’s damages
• Paying the other side’s attorney’s fees and costs
• Individual liability: individuals with a hand in misclassification aren’t shielded by the corporation; and
• To the extent a settlement is reached, the agreement itself—and the amounts paid—is public information.
• Not including IRS and/or DOL penalties.

What Employers Should Do Now:

1. Review existing and future independent contractor arrangements against the new framework.
2. Consider conducting a worker classification audit using the updated criteria.
3. Explore the IRS Voluntary Classification Settlement Program (VCSP) with guidance from a CPA.
4. Seek legal advice to understand the implications and ensure compliance.

 

If you would like for us to assist you in navigating the complexities of worker classification, please contact attorney Casey Martens at [email protected] or 864.973.6688.