Businesses Brace for Tougher Independent Contractor Rule

Beth Dean 01.21.24
Graphic - Blog 2024-01-23 - Independent Contractor Rule

Big Change for Gig Work and More

The Department of Labor (DOL) has revised its rules for classifying workers as independent contractors, making it more difficult for businesses to do so. 

Effective March 11, 2024, this change impacts workers across the US and could have significant implications for businesses of all sizes. New rules make it much harder to classify someone as a contractor, potentially pushing millions into the “employee” category.

What’s different?

Before, two key factors decided the difference between an employee and independent contractor: control over the work and the chance for the worker to profit or lose. Now, it’s a six-factor test focused on “economic reality.” This means considering things like:

  • Who’s in charge? How much control does the company have over how the work is done?
  • Who takes the risk? Can the worker directly earn more or lose money based on their efforts?
  • Who makes the investment? Is the worker’s investment (example: tools) significant compared to the employer’s?
  • How permanent is the gig? Is it a one-time job or an ongoing relationship?
  • Is it core business? Is the work essential to the company’s main operation?
  • Special skills required? Does the job require unique skills or expertise?
Why the fuss?

This classification conundrum is about more than just semantics. Employees get benefits like minimum wage and overtime, while most contractors don’t. If more fall under the “employee” umbrella, companies face:

  • Higher costs: More wages, benefits, and potential payroll taxes.
  • Lawsuit risk: Misclassifying workers can be expensive if challenged.

What can companies do?

  • Check your roster: Audit current independent contractor relationships. See if anyone falls under the new “employee” definition.
  • Review policies: Update protocols for working with independent contractors to fit the new rules.
  • Train managers: Make sure everyone understands the changes and how to comply.
  • Talk to a lawyer or trusted advisor: Get expert advice on navigating the new landscape.
What’s next?

Expect legal challenges from businesses. But for now, companies need to adapt. This could have a big impact on gig work in particular and independent contractor relationships across the country.

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