Understanding the New Guidance: Are You Misclassifying Your Workers?
The U.S. Department of Labor issued new guidance related to independent contractors. Their goal is to ensure that people who should be considered employees, with all of the benefits employees are entitled to, should not be labeled as independent contractors. Misclassification of status as an independent contractor could mean that some people are not receiving the benefits they should be and are not being paid minimum wage or overtime pay – leading to costly fines for employers.
The New Rule
This recent rule overturns the 2021 Independent Contractor Rule, aiming to align classifications with judicial precedent and minimize the risk of misclassification. Employers should note the return to a multifactor analysis for determining worker status under the Fair Labor Standards Act. Factors such as opportunity for profit or loss, investments, work relationship permanence, control, relevance to the employer’s business, and worker’s skill and initiative will be assessed without predetermined weights. This shift prioritizes clarity, and compliance, and most importantly, protects employers from misclassification pitfalls.
What You Need to Know If You Work with Independent Contractors
Employers must understand the implications of this new law. The new rule, which is called the Employee or Independent Contractor Classification Under the Fair Labor Standards Act, aims to protect employees who should be treated as employees and not independent contractors.
The Fair Labor Standards Act requires that employees be treated fairly, specifically in the areas of minimum age and overtime pay. The belief is that many people who should be employees and receive these rights are not getting them.
Determining Employee and Independent Contractor Status
There are six qualifications that the Department of Labor now requires to determine if a person should truly be an independent contractor or an employee. Consider these key factors:
- The opportunity for profit or loss the worker may have
- The financial state and nature of the resources the worker has put into the job
- The degree of permanence of the work relationship
- The amount of control the employer has over the worker’s performance, schedule, and overall work
- Whether the work being done is essential to the company’s business
- Worker’s skill and initiative
While this new rule aims to provide clarity, there is still quite a bit of uncertainty. However, if a person is mostly controlled by and supporting an employer, they may be an employee.
That gives the employee several rights, including the right to overtime pay and to earn at least minimum wage. It also means that the employee’s wages should have income taxes and Social Security taxes withheld. Employers must follow all employee-related tax withholdings or face penalties.
What Should Employers Do?
The bottom line is there is still a fine line between employee and independent contractor classification, and the penalties for getting it wrong can be costly to employers. The misclassification of employees as independent contractors could lead to fines and penalties. For this reason, employers should meet with their legal team to ensure they fully understand how their employees and workers should be classified. Our employment law attorneys can offer guidance to employers to ensure you are correctly classifying your team members.
Schedule a Consultation with Our Employer Attorney Now
Our employment lawyer serving Mercer County at Hamilton Law Firm, P.C., is here to help you. As a lawyer for employers, let us be your legal advocate to protect your company from claims of misclassification. Contact us now for a consultation by calling 609-945-7310.