Archives for March 2024

It’s Time (again) to Conduct an Independent Contractor Classification Compliance Audit

If your organization uses independent contractors (“IC”), it’s time, once again, to assess whether they are properly classified due to the March 11, 2024 effective date for the Department of Labor’s (“DOL”) “Final Rule on Classifying Workers as Employees or Independent Contractors Under the Fair Labor Standards Act.”   

At a high level, the final rule represents an intentional shift by the DOL to a narrower interpretation of IC status under the “economic reality” test used by courts and government agencies to determine whether a worker is an employee or IC.  In effect, the new rule makes it harder for workers to qualify as ICs

The final rule applies the following six factors in making this analysis:  (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.  This test relies on the totality of the circumstances where no one factor is determinative.  The DOL’s summary of how it interprets each of these factors  can be found here:  DOL FAQs.

States have adopted their own version of this test in analyzing misclassification cases under state law.   

The consequences for misclassifying a worker as an IC can be high in terms of financial penalties and business disruption.  Now is the time to conduct a compliance audit.  Please let me know if I can assist.