Final Ruling for Independent Contractor Classification
On Jan. 10, 2024, the U.S. Department of Labor published a final ruling for classifying independent contractors in an effort to preserve essential worker rights and provide consistency for entities covered by the Fair Labor Standards Act.
This rule, which became effective on March 11, 2024, reduces the risk of employees being misclassified as independent contractors while also providing consistent criteria for businesses that regularly engage with individuals who are in business for themselves.
When determining if someone should be classified as an employee or an independent contractor, the rule recommends that employers consider the following factors:
- Opportunity for Profit or Loss – Workers with no opportunity for profit or loss can be considered employees.
- Nature and Degree of Control – Individuals being scheduled and supervised by others can be considered employees.
- Degree of Permanence – Continuous or exclusive work can indicate employee status.
- Integral Work – Work considered “integral” to the employer’s business implies employee status.
- Specialized Skill – If a worker requires training or is not applying specialized skills to complete the job, they can be considered an employee.
- Entrepreneurial Effort – A worker can be considered an employee if their level of capital investment or entrepreneurial effort is relatively low compared to the employer.
In addition to these factors, one can claim employee status by showcasing an economic dependence between themselves and a potential employer.
For organizations that currently utilize independent contractors, it’s important to review the factors above and determine if any qualified contractors should be reclassified as employees. Because reclassification requires making these newly labeled employees eligible for minimum wage, overtime protections and benefits such as health insurance and retirement packages, organizations will need to plan ahead for potential changes this rule will cause to future budgets.
For assistance navigating these classification changes, connect with the experts at SST.
