The U.S. Department of Labor’s “New Independent Contractor Rule” sets forth revised criteria to accurately classify workers, impacting nearly half the workforce. This pivotal change, effective March 11th 2024, aims to clarify and enforce proper employment status, ensuring fair labor practices and compliance across industries.

According to a recent study, independent contractors and freelancers make up about 45% of the U.S. workforce, equaling roughly 72 million Americans. But are some of these workers being misclassified? Should they actually be considered company employees?

On January 10, 2024, the US Department of Labor (DOL) revised its guidance on how to determine who is an employee and who is an independent contractor under the Fair Labor Standards Act (FLSA).

The new rule will take effect on March 11, 2024 and may be applied to workers in any industry. According to the DOL, this final rule “will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.”

Key Factors of the New Independent Contractor Rules

The DOL’s 2024 Final Independent Contractor Rule provides the following six-factor “economic reality” test to help identify if a worker should be classified as an independent worker or an employee. The six factors are:

  1. Opportunity for profit or loss depending on managerial skill: Can the worker negotiate their fee for the work provided? Can they accept or decline jobs offered? If so, this suggests independent worker status.
  2. Investments by the worker and the employer: Is the contractor or the employer paying for necessary tools and equipment to perform the job? If it’s the employer, that could indicate employee status.
  3. Degree of permanence of the work relationship: A work relationship that is “indefinite in duration or continuous” suggests employee status. A job that is definite in duration, project-based, or sporadic is evidence of independent worker status.
  4. Nature and degree of control: Does the employer determine the worker’s schedule? Do they limit the contractor’s ability to work for other companies? A high degree of control by the company could mean the worker is now considered an employee.
  5. Whether the work performed is an integral part of the employer’s business: Is the function performed by the worker necessary, or central to the company’s business? If so, they may be considered an employee.
  6. Skill and initiative: This factor considers whether the worker uses specialized skills to do the job and whether those skills “contribute to business-like initiative.” If so, that indicates the worker is an independent contractor. 

For a deeper dive, you can check out the FAQ page created by the DOL.

What does this mean for your business?

Misclassifying employees as independent contractors can lead to sizable costs, from penalties and fines to unpaid minimum wages and overtime.

Employers should carefully review their current worker classifications to ensure they meet the requirements of the 2024 final rule. It’s a good idea for companies to obtain qualified professional advice to make sure they are in compliance.

Want more information about the status of your independent contractors in regards to the New Independent Contractor Rules, or any other HR-related questions? Our team at Accu Data is always here to help! Contact us today and one of our dedicated agents will get back to you shortly and answer all of your questions.