The Department of Labor’s 2024 Final Ruling for Independent Contractors
The determination of whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) has been subject to interpretation for decades, exacerbated by the rise in the number of freelancers in the United States. Workers classified as employees are entitled to minimum wage, overtime, and other wage and hour protections not applicable to independent contractors. Companies struggle to interpret the many Federal, state, and municipal “classification tests” that might be applicable in any situation.
The “2021 Final Rule” attempted to simplify the evaluation process by focusing on two “core factors” that measure the level of control exerted by the employer and the worker’s opportunity for profit or loss. However, lack of clarity in terms of how to determine level of control led to more confusion and potentially elevated levels of risk for employers who inadvertently misclassify workers.
The Department of Labor (DOL) has now issued the “2024 Final Rule”, effective March 11, returning to six factors of equal weight.
Supporters of the 2024 Final Rule point to the level of rigor, enabling a more realistic evaluation of all nuances of independent contractor usage. Detractors express concern regarding the level of complexity associated with interpreting the six factor criteria for independent contractor status. Employers may find it challenging to navigate the nuanced requirements, potentially resulting in misclassification and legal consequences.
Despite the confusion, what is clear is that every company should audit their current processes to determine if changes are needed. And they must do this quickly. nextSource can provide the guidance and assistance needed to ensure that you are fully compliant.
Our approach to independent contractor classification is to examine all applicable classification tests, conducting an evaluation that draws from the most rigorous requirements. We work closely with employment attorneys to ensure accurate interpretation of each of these six factors as well as other standards. If a worker fails to classify as an independent contractor, we suggest changes that would result in full compliance, and if compliance is not possible, we offer to employ the worker as our W2 employee for the duration of their engagement with you. We provide full support in the event of a government audit. In more than 20 years of providing this service, our audited clients have never experienced an adverse ruling by the IRS or other government agency. With our expertise and tailored solutions, we will assist businesses in adhering to the updated regulations, ensuring accurate classification while mitigating potential risks. Our goal is to alleviate the burden on employers by offering clarity and support in navigating the evolving landscape of labor regulations.
6 Factor Test:
- Worker’s opportunity for profit or loss depending on managerial skill
- Investments made by the worker and the employer
- Degree of permanence of the work relationship
- Nature and degree of control over performance of the work
- Extent to which the work performed in an integral part of the employer’s business
- Use of the worker’s skill and initiative
nextSource is here to help give you peace of mind when dealing with IC compliance. Contact us at sales@nextSource.com to get connected and learn more about our IC Program.
