The U.S. Department of Labor recently announced a new rule to help employers decide on whether a worker is an employee or an independent contractor. The new rule took effect on March 11, 2024, and utilizes a six-factor test to make the employee/contractor determination. The rule will largely affect such industries as home health care, construction, trucking, and ride-share and delivery services.
The Six-Factor Test
Under the new rule, employers are to utilize a six-factor totality-of-the-circumstances test to determine whether a worker is an employee or an independent contractor. This test basically says that employers make an employee/contractor decision by considering:
- Any opportunity for profit or loss a worker might have,
- The financial stake and nature of any resources a worker has invested in the work,
- The degree of permanence of the work relationship,
- The degree of control an employer has over the person’s work,
- Whether the work the person does is essential to the employer’s business, and
- Factors regarding the worker’s skill and initiative.
The new rule essentially rescinds the 2021 Independent Contractor Rule that was adopted by the Trump Administration. According to the Labor Department, the new rule restores the multifactor analysis used by courts for decades prior to the 2021 rule. The Department believes the new rule will help ensure that employers analyze all relevant factors in determining if a worker is an employee or an independent contractor.
Impact of the Rule
The new rule is designed to help better protect employees. This protection will come, in theory, by the new rule reducing an employer’s efforts to classify an employee as an independent contractor in order to avoid laws that protect employees.
The Labor Department asserts that employers often misclassify employees as independent contractors in an attempt to deprive workers of full and fair compensation, including:
- Overtime,
- Health care benefits,
- Workers’ compensation coverage,
- Protection against discrimination, and
- Entitlement to social security.
The new rule seeks to deter this type of deprivation.
Commentators believe there might be some pushback from a company’s willingness to follow the new rule, and therefore, some litigation regarding the rule’s enforcement is expected.
Contact The McWilliams Law Group for Help
When you are ready to open a new business or take your current business to the next level, the lawyers at McWilliams Law, P.C. are here to help. We can help ensure that your operations provide you with the tax and liability protections that best fit your short- and long-term plans. Our attorneys work closely with business owners throughout Washington and California, providing individualized and strategic advice to help their businesses run smoothly. Contact us now and get the skilled business advice that you deserve.
* Main image at top by pressfoto on Freepik
