December 17, 2024
Are You My Employer? U.S. DOL Recovers $41M for Misclassified Workers
Today, the U.S. Department of Labor gave a year-end report announcing, “Since January 2021, we’ve recovered over $41 million in back wages for more than 28,000 workers who were misclassified as independent contractors.” Some key industries include construction and health care.
Properly classifying a worker as an employee v. independent contractor can be challenging in light of statutory, regulatory, federal, and state rules that differ from one another. Earlier this month, one employer learned this lesson to the tune of $2.4M.
On March 11, 2024, the U.S. Department of Labor’s final rule took effect, modifying the factors employers should use to classify a worker as an independent contractor. The rule includes a 6-factor “economic realities” test to make this determination. Many states, however, use what is commonly referred to as an “ABC test:” Absence of control; Business of the employer; and Customarily engaged. But wait, there’s more! Some states use all three factors. Some use just the A and B, some just the A and C. It’s enough to make your head spin.
How do these issues even come up? I find a common starting point is unemployment insurance. An employer engages a worker as an independent contract. The work ends. The worker then files for unemployment insurance benefits, which baffles me a tad, but that’s OK. The employer responds to the state, challenging the claim because the worker is not eligible for unemployment insurance because the worker was not your employee. The state disagrees because it uses a test that is different from the one you used.
Tips. When engaging the services of a person you intend to classify as an independent contractor rather than employee, ensure you are considering federal and state rules. As you work through these factors or tests, you may want to consult with employment counsel to ensure you have all of your bases covered.
On the horizon. Whether the DOL’s final rule will remain in effect under the new Administration remains to be seen. The prior rule (2021) was a bit more employer-friendly. Stay tuned.
