April 11, 2023Share
Independent Contractor Or Employee?
THE RULES ARE ABOUT TO CHANGE
The Department of Labor is staged to revamp employee classification, altering who qualifies as independent contractors and employees. The changes will likely be enacted this year with far-reaching implications for employers.
We expect heightened scrutiny toward businesses, especially in industries known for greater use of independent contractors. The gig worker economy, for one, stands to be drastically altered. For example, under the proposed changes, a person electing full-time gig work would have a greater likelihood of being classified as an employee. However, any business that utilizes independent contractors will be impacted by the new rules.
The proposed rule incorporates a multifactor, totality-of-the-circumstances analysis of the current “economic reality” test. Under this test, no single factor has greater weight than another, nor is any factor dispositive. While the nature of the work and onus of control remain considerations, the key is whether the worker is “dependent on the employer” for work. While the new rule must be applied on a case-by-case basis, we find one element of the new test to be worthy of specific mention: under the new law, the focus is whether the worker is economically dependent on the employer for work or is in business for him or herself. The elements are, in essence, weighed to answer this question deemed essential to determination of the worker’s proper classification. Moreover, employers must consider whether the worker’s performance of work is integral to his or her business; if so, it suggests employee status.
In general, the law makes it more difficult to lawfully classify a worker as an independent contractor. With an increased roster of employees, businesses will have more workers with entitlement to benefits and legal protections, such as workers’ compensation coverage. Additionally, persons classified as employees are protected by labor laws, including those requiring payment of overtime, protecting against discrimination, and protecting whistleblowers. Perhaps most importantly, employers are at risk of financial penalties for misclassifying workers.
As the new laws are complex and anticipated to have quick enactment and effective dates, we encourage you to contact us to ensure you are properly informed and taking the appropriate steps to protect your business and your bottom line.
DISCLAIMER: This article is provided as a courtesy and is intended for the general information of the matters discussed above and should not be relied upon as legal advice. Neither Kelley Kronenberg, nor its individual attorneys or staff, are responsible for errors, omissions and/or typographical errors – always seek competent legal counsel.