EMPLOYEE VS CONTRACTOR RULE CHANGE REMINDER
On March 11, 2024, the new rules for determining if a worker is an ‘independent contractor’ or an 'employee' will take effect.
The US Department of Labor has modified the existing, more employer friendly, five-factor test, and is replacing it with a six-factor ‘economic reality’ test.
- 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 over the work.
- Extent to which the work performed is an integral part of the potential employer’s business.
- Skill and initiative.
Unlike the prior rule, which had emphasized two core factors (the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss), no one factor is intended to be weighed more heavily than another when analyzing whether a worker is properly classified.
The economic reality test focuses more broadly on a worker’s economic dependence on an employer by considering the "totality of the circumstances".
Since misclassifying employees as contractors can impose significant costs, employers should consider conducting an audit of their independent contractors, including the relationship with workers, agreements, and work descriptions.
