In the past year, people may have changed jobs or taken on additional work. It is important for workers to be classified properly as an employee or as an independent contractor.
Factors to consider
In a recent rule, the Department of Labor clarified factors that can help workers understand which category their work falls into under the Fair Labor Standards Act. This rule was published on January 7, 2021 and takes effect on March 8, 2021.
There is an economic reality test to determine whether an individual is an independent contractor, meaning the worker is in business for him or herself, or an employee, meaning the worker is economically dependent on a potential employer for work.
It also includes two core factors to make this determination. These factors are the nature and degree of control over the work and the worker’s opportunity for profit or loss based on his or her initiative and/or investment.
In addition to the core factors, it also considers the amount of skill required for the work, the degree of permanence of the working relationship and whether the work is part of an integrated unit of production.
Employers who misclassify workers can face significant penalties, including being responsible for paying back wages and overtime to affected workers. There can also be implications for incorrectly withholding taxes.
Employers may also be in violation of workplace anti-discrimination laws and the Family and Medical Leave Act if they fail to provide coverage to a worker that should have been classified as an employee instead of an independent contractor.
If a worker believes he or she has been misclassified, an experienced employment attorney can provide advice.