How to Classify Workers for Business Compliance

The DOL has spoken, folks, and let's just say their new ruling on worker classification is as clear as a frosted window. But don't you worry, I've gone all HR and here's what I've uncovered for all of you scratching your heads out there.   ⚖️ At the high level, the 2021 guidelines were pretty company-centric, like a strict parent saying “when, where, and how” to work—if that was your script, you had employees on your hands. Fast-forward to 2024, and it's a different story. We've got the "totality test" now, featuring a six-factor ensemble to determine who's who in the employment relationship.   A Few Main Takeaways to Chew On: **reminder this is a totality test so you have to look at the whole picture! - 💡 Impact on Profit and Loss: Think of it this way—if a person's got the managerial role to boost their earnings (hello advertising and hiring), they're leaning towards independent contractor status. But if their only ticket to more cash is more hours, employee status is probably where they're at. - 🚚 Investments: It's all about scale. Does the person's investment make a splash in the business pool, like a single truck owner versus a corporate fleet? That's the independent contractor vibe. If they come armed with just their lunch and a pencil, it's more "employee-esque." - 🔑 Integral to the Business: Ask yourself, "Can my business run without this person?" If it’s a "yeah, no problem," then independent contractor may be their jam. But if it's a "no way, they’re vital," then you're looking at an employee. Picture a factory setting—the machine operator is an integral cog (definite employee), but the plumber fixing leaks? Not so much (independent contractor).   So, what’s the game plan? 1. 📖 Dive into the ruling like it's a good novel. Get cozy with the new ruling and do some homework on your team. Knowledge is power, and it might just spark some lightbulb moments. Your very own cliff notes will highlight the gray areas begging for attention. 2. 🤝 Consult with an employment lawyer AND an accountant. wo heads are better than one, especially with new laws on the line. 3. 📜 If you’re set on the independent contractor track, draft a crystal-clear agreement. Make sure it covers the relationship nature, tool and resource expenses, and all that jazz about taxes and insurance.   It's a new day, a new rule, and time for some new strategies. While not the most exhilarating topic…. This can make or break your company in 2024 so do your due diligence! #DOLUpdates #EmployeeVsContractor  

WHAT I LEARNED IN HR THIS WEEK: DIFFICULT NEW RULES TO COMPLY WITH ARE COMING. Beginning on March 11, 2024, some or all of your independent contractors can no longer remain independent contractors because a new test from the Department of Labor. That means that you will need to reclassify them as W-2 employees for the purposes of minimum wages, overtime payments and child labor laws under the Fair Labor Standards Act.    Specifically, under the old test, employers needed only prove two factors before they could classify a worker as a 1099 contractor. Now employers must prove six factors that each worker:  1.     Could lose money working for you; 2.     Invested heavily to work for you, for which you will not reimburse him; 3.     Does not and will not work for you for long time period of time; 4.     Significantly controls the work he and his workers perform; 5.     Is not an integral part of your business; and 6.     Utilizes special skills to work for you and acts like an independent business owner when working for you.     These factors are in addition to existing factors that must be proven if your classifications are challenged by the DOL or in court. Start taking take steps now, with the assistance of counsel well experienced with the FLSA, to audit your independent contractors and eliminate/reduce your potential liability.  

The #1 question I got from clients in 2022 is the #1 question I’ve gotten from clients so far in 2024: “Should my 1099 contractors really be my W-2 employees?” I love HR compliance because it’s generally black & white … but the guidelines for properly classifying your workers are as grey as storm clouds. Still, the US Department of Labor recently announced new (in this decade, anyway) guidelines to help business owners (and their favorite HR consultant) figure out who can be an Independent Contractor and who should be a W2 employee. I still prefer “black & white” … but I do appreciate guidelines, too! Going into effect on March 11, the new Independent Contractor rule under the DOL’s Fair Labor Standards Act outlines six factors to consider when properly classifying workers.  This “Economic Realties Test” – where a business leader determines whether a worker is either economically dependent on an employer for work, or is in business for himself — is a departure from the current DOL guidance, so I want to tell you all about it. But first … Here’s a crucial insight that really hit home for me: recent data from the National Employment Law Project (NELP), indicates that a significant 10-30% of us might be misclassifying our workers as independent contractors. I get the urge to cut costs, and it’s clear that classifying workers as contractors might seem like an attractive way to save money. I also have several clients who’ve told me that their contractors refuse to become employees. Does that sound familiar? Classifying your workers isn’t just a mutual decision you make with them – both the DOL and the Internal Revenue Service care very much if you pay someone as a “contractor” when they really fit the mold of “employee.” Employees are covered by employment laws that create a safety net against unfair practices, discrimination, and workplace harassment - and bestow mandatory benefits like retirement plans, paid sick, leave, health insurance, and worker's compensation insurance. Contractors don’t have these safeguards – and the government is wary when workers aren’t properly protected. So at-a-glance, here is the new Six-Factor Economic Realities test form the DOL:   1️⃣ Opportunity for Profit or Loss   2️⃣ Investments in Equipment     3️⃣ The Degree of Permanence 4️⃣ The Degree of Control 5️⃣ Essential to the Employer’s Business 6️⃣ Worker’s Skill and Initiative    Got a question or want to talk through the classification of your own workers before March 11?  Hit me up for a free 20-minute consultation so we can get this right, together! I'll put the link in the comments. #hrcompliance #humanresources #management #departmentoflabor #independentcontractors

The DOL has released its final decision regarding the determination of whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). The old rule will be replaced with a new one that is dependent on six factors. The decision does not adopt an ABC test meaning that it does not impact independent contractor classification under state laws that use the ABC test. Massachusetts and California are two of the states that will not be affected. There are other states too. The rule only revises the guidance as to how to determine if a worker is an employee or independent contractor under the FLSA. The six factors that must be considered to make the determination are: 1) is there an opportunity for profit or loss depending on managerial skill; 2) the investments by the worker and the potential employer; 3) the degree of permanence of the work relationship; 4) the nature and degree of control; 5) the extent to which the work performed is an integral part of the potential employer's business; and 6) the skill and initiative. It should be noted that sometimes additional factors may be relevant and considered if they support whether the worker is economically dependent on the potential employer for work. Massachusetts employers keep in mind that the FLSA does not preempt any other laws that protect workers, therefore, you must comply with all federal, state, and local laws that apply and ensure that you are meeting whichever standard provides workers with the greatest protection. Keep in mind to be an independent contractor in Massachusetts the worker must meet all three factors of the ABC test. Those factors are: the control that the company exerts on the worker, whether the work is outside the company's typical business, and whether the worker normally provides this type of work as an independent business. Failure to correctly classify workers results in stiff penalties in the form or money damages. #employmentlaw #smallbusiness #simplygoodlaw #workplace #independentcontractor #dol