January 10, 2024
US DOL Publishes Final Independent Contractor Classification Rule
What’s old is new again. In 2007, I had the honor of testifying before a joint U.S. Congressional subcommittee hearing on the topic of worker (mis)classification. Here we are, 17 years later and still trying to nail down this definition. Good luck.
The new 106-page rule includes approximately 104 pages of preamble and not quite two pages of the actual rule. If you use one or more independent contractors, aka 1099 workers, consider this.
Effective March 11, 2024, a worker’s economic dependence upon the would-be employer will be the “ultimate inquiry.” The focus will be on whether a worker is economically dependent upon the would-be employer or “in business for themself.” At least six factors will be used to make that determination. Why “at least.” The rule reads, “Moreover, these six factors are not exhaustive…additional factors may be considered.” The six factors 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 the potential employer has over the performance of the work, including potential or reserved control, as well as the economic aspects of the relationship;
- extent to which the work performed is an integral part of the potential employer’s business; and
- whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.
What about those “other factors”? The rule suggests they may be used to the employer’s advantage. “Additional factors may be relevant…if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.” The rule does not suggest that other factors may be used if they indicate the reverse.
Consider the above. Consult with your company’s employment counsel to (re)assess current and future classifications of workers as independent contractors rather than employees.
Reminder: This rule applies only to the Fair Labor Standards Act. You may recall in June 2023 the NLRB published its final rule on the same topic under the National Labor Relations Act. Add to that, regulatory agencies like the IRS and state codes may have their own definitions for unemployment, wage and hour (see Table 3, 2021), workers’ compensation purposes, and more.