Recent changes from the Department of Labor (DOL) could significantly impact how you classify workers – and whether they’re considered employees or independent contractors. This update to the Fair Labor Standards Act’s (FLSA) rules has important implications for both businesses and individuals.
Here are the key changes and potential 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 might be more or less important depending on the facts of the case. Employers and individuals who consider themselves independent contractors should carefully review 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
Whether an employer misclassifies any worker unintentionally or willfully, doing so can result in significant liabilities, including back overtime pay for up to three years and attorney fees.
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
Understanding and complying with the DOL’s new rules for independent contractor status is crucial to avoid legal and financial repercussions. Let the experts at Boris Benic and Associates help you assess your current classifications and ensure compliance with the DOL’s new rule.