The U.S. Department of Labor’s (DOL) new rule on independent contractors may seem familiar. This most recent change in the rule restores an earlier standard that required organizations to weigh a variety of economic factors together to determine whether a worker is an employee or an independent contractor. This new ruling went into effect on March 11, 2024.
Many employers are familiar with how to comply with the earlier standard that existed before 2021. This reinstated test mirrors the standard that was in place before 2021.
According to the Fair Labor Standards Act (FLSA), employees are entitled to minimum wage, overtime pay, and other benefits. Independent contractors, however, do not receive such benefits but have more flexibility to set their schedules and work for multiple companies. The DOL’s final rule rescinds a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight.
Under the new rule, employers would use a totality-of-the-circumstances analysis, in which none of the factors carry greater weight. The new test includes six factors:
- 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’s 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.
Other relevant factors can also be considered.
Moving Forward: Tips for Employers
If you are going to hire an independent contractor, make sure you have a contract that clearly states the contractor is not an employee and therefore is not entitled to employee benefits. Also, include the scope of work and the timeframe in which the project/work is to be completed.
HR professionals and employers should consider adding class-action waivers to all arbitration agreements they use with independent contractors.
Ensure that independent contractors invoice the organization for services rendered and are paid via accounts payable, not through payroll.
Furthermore, HR departments should inventory all worker classifications under the 1099 tax arrangement. Make sure HR knows when, how, and where independent contractors are engaged and what types of agreements the organization is using, rather than having scores of people across the organization handle it differently.
If you’d like more information or to discuss a current situation, please don’t hesitate to reach out to us at HRService@501c.com or give us a call at (800) 358-2163.
About Us
For more than 40 years, 501(c) Services has been a leader in offering solutions for unemployment costs, claims management, and HR support to nonprofit organizations. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy and are committed to providing our clients with customized plans that fit their needs.
Contact us today to see if your organization could benefit from our services.
Are you already working with us and need assistance with an HR or unemployment issue? Contact us here.
The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
