Department of Labor Updates – Employee or Independent Contractor?

By: Belinda Dantin

By now you have surely seen the news! If you are a business owner and employ labor as Independent Contractors, there are updates you should be aware of. The current Department of Labor (DOL) requirements for employers to determine if a worker is considered an “Employee” or “Independent Contractor” include two critical key factors.

  • Whether the worker has control over their work.

  • What is the worker’s potential for profit or loss?

The DOL is now attempting to address the misclassification of workers classified as Independent Contractors by adjusting the economic test to lean towards an employee status. The DOL is proposing to dig deeper into the factors which include managerial skills, initiative, investments by employer and worker, and the extent to which the work performed is an integral part of the employer’s business.

What impact does this have on your organization? Why is remaining compliant important?

While organizations can avoid significant wage, tax, and other obligations engaging independent contractors, they should understand the risks which include financial and legal ramifications of misclassifying employees as independent contractors. These risks include but are not limited to worker’s compensation claims, tax audits due to failure to pay unemployment and payroll taxes, wage and hour claims for back pay and overtime wages, underreporting and payment of federal employment and income taxes to name a few!

The Proposed Rule is on track to go into effect in the middle of 2023. Organizations should begin to consider how the proposed rule may impact their current workforce and closely review their contractor relationships. If you are not sure where to start, please reach out, HR NOLA can help! Contact us today for more information.

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