Whether you use independent contractors in your business or are an independent contractor yourself, take note of recent Department of Labor (DOL) changes in the Fair Labor Standard Act’s (FLSA) rule for determining independent contractor status — and the consequences of misclassification.
MULTIFACTOR ANALYSIS RESTORED
The new independent contractor rule restores the multifactor analysis used by courts for decades to determine whether a worker is an employee or an independent contractor. Under the update, six factors guide the analysis of a worker’s relationship with an employer:
- Any opportunity for profit or loss a worker might have
- The financial stake of any resources a worker has invested in the job
- The degree of permanence of the work relationship
- The degree of control an employer has over the person’s work, whether what the person does is essential to the employer’s business
- A worker’s skill and initiative
These factors aren’t all-inclusive, and different factors might be more or less important in different cases depending on the facts of that case. Employers and individuals who consider themselves independent contractors should carefully review independent contractor and employee classifications in light of the DOL’s new rule. The DOL has a series of FAQs on its website that may answer some of your questions.
MISCLASSIFICATION
Misclassification may result in lost wages, benefits, unemployment insurance, and workers’ compensation coverage for affected workers. Whether an employer misclassifies any workers unintentionally or willfully, doing so can result in significant liabilities, including back overtime pay for up to three years and payment of attorney fees for misclassified workers.
That’s not all. Employers face additional penalties under the FLSA and other applicable employment and employee-benefit laws, including:
- Loss of tax-qualified status for the employer’s retirement plan
- Back FICA withholding funds for affected workers
- Criminal and civil penalties
Talk to your trusted legal professional about the classification rule changes.