Are Your Independent Contractors, Truly Independent Contractors?
As much as you try to avoid it, compliance is the name of the game…the game of doing business, that is.
Hiring independent contractors is one of the simplest ways for startups or other resourced-strapped businesses to become productive quickly. With independent contractors, companies are able to staff up quickly and gain the expertise and skills needed to operate effectively while saving time and money. However, there are significant risks with hiring independent contractors, especially on a long-term and ongoing basis.
With the US Department of Labor’s Final rule, which went into effect on March 11, 2024, it behooves organizations to ensure that their independent contract employees are, in fact, independent contractors.
The final rule now uses a totality of the circumstances approach to determining whether a worker is an employee. This means that the six factors used to determine whether a worker is an independent contractor are equally considered, whereas previously, two factors were given more weight in the analysis.
Those factors are:
the worker’s opportunity for profit or loss depending on managerial skill;
investments by the worker and potential employer;
the degree of permanence of the relationship;
the nature and degree of the potential employer’s control over the work;
the extent to which the work is “integral” to the potential employer’s business; and
the worker’s specialized skill or initiative.
In addition to the DOL’s rules, employers must ensure that they are aware of any state laws governing the classification of workers. Generally, the worker must meet the criteria described in the ABC test.
A: Be free from the company’s control or direction.
B: Carry out work deemed outside the employer’s usual business.
C: Be engaged in an independent trade, occupation, profession, or business.
What Happens Next?
While the rule has been legally challenged, it is officially in effect and is the standard under which workers should be classified. Employers should ensure that all workers are properly classified under these new rules. Grab this decision tree to help you determine whether the worker is an employee or an independent contractor.
Peale Piper Can Help
In addition to the mountains of compliance responsibilities that you already have, constant changes and updates to laws and regulations mean that the list of compliance obligations your business is constantly growing. Your company should be prepared, and Peale Piper can help. We offer compliance support to help keep you up to date on laws and regulations and proactive HR advice that might help you develop a strategy, including assessments and updates to policies and procedures, so you can ultimately stay focused on your business.
