On March 11, 2024, the DOL will be
returning to its pre-2021 framework
for evaluating whether workers
should be classified as independent
contractors or employees. This
distinction determines whether a
worker may be entitled to overtime
under the Fair Labor Standards Act
for hours worked over 40 hours in
any workweek. Many employers
have found themselves having to
pay back wages to workers that
were misclassified as contractors.
A contract stating that the worker
is serving as a contractor is not
dispositive. If a worker’s classification
is ever challenged, the DOL will not
rely on what the parties assert is
the classification, but instead what
the actual relationship is between
the parties. The rule implementing
this return to the pre-2021 test to
be applied in classification cases is
said to reaffirm that workers are
not independent contractors if they
are, as a matter of economic reality,
dependent on a business for work.
So, if you are unfamiliar with the economic reality test that was applied prior to 2021, you should consider the following six factors when determining if a worker is an independent contractor:
Opportunity for profit or loss depending on managerial skill
Investments by the work and the business
Degree of permanence of the work relationship
Nature and degree of control the business has over the work relationship
Extent to which the work performed is an integral part of the potential employer’s business
Skill and initiative
This is not an ABC checklist of elements to be satisfied. Instead, as explained by the DOL in its Frequently Asked Questions - Final Rule: Employee or Independent Contractor Classification Under the FLSA | U.S. Department of Labor (dol.gov), “No factor or
set of factors among this list of six
has a predetermined weight, and
additional factors may be relevant
if such factors in some way indicate
whether the worker is in business for
themselves . . .as opposed to being
economically dependent on the
employer for work...”
Although this approach is more
consistent with how federal
courts have been evaluating the
classification issue, the application
of these factors is subject to
interpretation and can lead to
litigation. Therefore, the best place
to start when evaluating whether
a worker is properly classified is
with the premise that the default
relationship between a worker and
employer is that the worker is an
employee. (This is how government
agencies generally approach the
issue, and you will be asked to
provide facts to support the assertion
that the individual is a contractor.)
The IRS, the Florida Division of Economic Opportunity, Division of Worker’s Compensation, and the EEOC each have their own, albeit similar, frameworks for determining the proper classification for purposes of the laws that those agencies enforce. Further, under Florida Statute § 409.2576, businesses that pay or will pay an independent contractor over $600 in a calendar year must file a report within 20 days after their first payment to the contractor. For more information on requirements see New Requirements for Florida Businesses Using Independent Contractors – Williams Parker Attorneys at Law
Although the change in the standard
is fast approaching, there is still time
for businesses to consider whether
their contractors are properly
classified.
For more information about Williams Parker Attorneys at Law visit 50 Central Avenue, Eighth Floor, Sarasota, call 941.366.4800 or visit www.WilliamsParker.com.