W2 or 1099? Final Independent Contractor Rule Issued

By TABS INC OnFebruary 23, 2024 0 Comments

Early January, the Department of Labor’s Wage and Hour Division (WHD) announced the final rule on worker classification, titled ” Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” scheduled to take effect March 11.

This rule aims to clarify worker status as either employee or independent contractor under the Fair Labor Standards Act (FLSA). It rescinds the 2021 Independent Contractor Rule, which designated “core factors” to evaluate in determining an employment relationship. The new rule considers multiple factors equally, including:

Opportunity for Profit or Loss Depending on Managerial Skill: Considers whether the worker can make money or lose money based on their ability to manage their work effectively, including their judgment and business skills.
Investments by the Worker and the Employer: Considers whether the worker or the employer has invested money or resources in a way that resembles a business investment or a more typical worker’s investment.
Degree of Permanence of the Work Relationship: Considers the working relationship as long-term or ongoing.
Nature and Degree of Control: Considers whether the potential employer determines the worker’s work schedule, directly supervises how the work is carried out or imposes restrictions on the worker’s ability to work for other employers.
The Extent to Which the Work Performed Is an Integral Part of the Employer’s Business: Considers whether the specific tasks performed are integral to the overall functioning of the business.
Skill and Initiative: Considers whether the worker uses specialized skills to perform the work and whether those skills resemble managing a business rather than simply performing a job.
Additional Factors: Considers other factors not listed that may be relevant to indicate whether the worker is in business for themselves, as opposed to being economically dependent on the potential employer for work.

The Society for Human Resource Management (SHRM) had previously expressed concerns about potential ambiguity in worker classification under the proposed rule and advocated for the retention of the 2021 classification test for its clarity and consistency.