How New DOL Rules Impact Employee vs. Independent Contractor Worker Classification

The Department of Labor (DOL) has proposed new rules to provide clarity on the classification of workers as independent contractors or employees under the Fair Labor Standards Act (FLSA). These rules become effective on March 11,2024. Therefore, it is important to review your DOL worker classifications now.

WHAT ARE THE NEW RULES REGARDING DOL WORKER CLASSIFICATION?

These final rules rescind the Independent Contractor Status Under the Fair Labor Standards Act (FLSA) rule that was published on January 7, 2021 and replaces it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA. The current rules, established in 2021 focused only on two factors:

• The nature and degree of the worker’s control over the work.
• The worker’s opportunity for profit or loss based on their initiative or investment.

The new DOL worker classification rules emphasize the “economic reality” test, focusing on the extent to which a worker is economically dependent on the employer. This test evaluates six multiple factors equally to determine the nature of the working relationship alongside the core factors mentioned above. The new factors regarding DOL worker classification include:

1. Opportunity for profit or loss depending on managerial skill;
2. Investment by the worker and the employer;
3. Permanence of the work relationship;
4. Nature and degree of control;
5. Whether the work performed is an integral part of the potential employer’s business, and
6. Skill and initiative.

Employers must weigh all relevant factors to determine whether a worker is an independent contractor or an employee. No single factor is determinative, and the analysis should consider the totality of the circumstances.

HOW DOES THIS IMPACT MY BUSINESS?

Proper classification of workers with the DOL is crucial for compliance with labor laws and regulations. Misclassification can result in legal liabilities, including back wages, payroll taxes, penalties, and lawsuits. Therefore, employers should carefully review their DOL worker classifications in light of the new rules and seek counsel if needed. More information about the final rule and commonly asked questions can be found on the DOL website, click here.

HOW CAN KATZABOSCH HELP?

We can help offer invaluable assistance to businesses navigating these new rules. We can support and guide your business in the following ways:

• Classification Assessment: Our HR consultants with our sister company, BlueStone Services can assess the current classification status of workers within your business, ensuring compliance with the new rules. They will review existing contracts, job descriptions, and working relationships to determine proper classification as independent contractors or employees.
• Financial Impact Analysis: Our professionals can conduct a financial impact analyses to assess costs associated with reclassifying workers or adjusting compensation and benefits to comply with the new rules. Let us help your businesses understand implications of misclassification and devise strategies to mitigate financial risks.
• Recordkeeping and Documentation: We can assist businesses in establishing and maintaining accurate records and documentation related to DOL worker classification. This includes documenting factors used for classification and ensuring records demonstrate compliance for audits or investigations.
• Tax Compliance: Our tax service group can advise on tax implications of worker classification, including payroll tax withholding, reporting requirements, and deductions. Let us help navigate complex tax laws to ensure compliance with federal and state regulations.
• Compliance Strategies: Our professionals can develop tailored compliance strategies considering industry practices, workforce dynamics, and regulatory requirements. Let our teams help assist your business in implementing policies to minimize misclassification risk and ensure ongoing compliance with the new rules.
• Audits and Investigations: For our clients, we can assist with representing your business during audits or investigations by government agencies like the DOL, by aiding in responding to inquiries, providing documentation, and resolving compliance issues.

Ready to navigate the complexities of the new rules with confidence? Let our team of professionals support your business every step of the way. Contact us today to ensure compliance, mitigate risks, and optimize your DOL workforce classification strategy.