Independent contractor or employee classification? The U.S. Department of Labor announced a final rule, starting March 11, 2024, revising the regulation on how to classify an employee or independent contractor under the Fair Labor Standards Act (FLSA). The Department of Labor felt that the 2021 Independent Contractor Rule increased the probability of misclassification. The new rule revises the previous conditions for determining the employee and independent contractor classification. The purpose of the revision is to help ensure that employees are compensated fairly and employers that follow the rules are not at a disadvantage when competing with employers that misclassify their employees.
The department returns to the multi-factor focus on the “economic reality” between the hiring entity and individual. These series of factors are used to help establish whether a person is considered an employee or an independent contractor. These factors include:
- the degree of the employer’s control over the work to be performed;
- the employee’s opportunity for profit or loss depending on their management skill;
- the worker and employer’s investment in resources required for the task;
- whether the service provided requires a special skill;
- the degree of stability of the working relationship; and
- whether the service rendered is an integral part of the employer’s business
Employers must carefully assess these factors to accurately classify their workers and confirm compliance with labor laws and regulations.
The Department of Labor’s revision, consistent with the FLSA, puts the emphasis on a totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor. The final rule also takes into account that all factors are evaluated without appointing a predetermined weight to one factor or set of factors.
If you have questions about your Nevada or Arizona employees and their classification, hiring a small-business lawyer can help avoid costly legal dangers and potential fines. A good business lawyer will analyze the working relationship and accurately classify the worker to help ensure compliance with relevant labor laws. They can also update any employment or independent contractor agreements as needed. With the ever-changing legal environment surrounding worker classification, seeking legal advice can help prevent potential litigation and financial liabilities.
