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On January 7, 2021, the U.S. Department of Labor (DOL) published a final rule clarifying independent contractor relationships. Specifically, the rule reaffirms using the “economic reality” test to determine whether an individual is in business for themselves (independent contractor) or is economically dependent on a potential employer for work.
The DOL identifies two “core factors” in making this determination: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. There are three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification, including (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production. The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. The final rule also provides six fact-specific examples applying the factors.
The rule was set to go into effect on March 8, 2021. However, because of the pending regulatory review ordered by the current presidential administration, it is now proposed to take effect May 7, 2021, assuming it passes review. At this point, that would be a big assumption. The longer the rule is delayed the more likely there will be legal challenges to the rule. Continue to look for updates on this developing topic.
- Review the final rule here.
- Review independent contractor status with legal counsel for compliance.
- Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.
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