The U.S. Department of Labor (DOL) recently dropped a final rule that's shaking up how independent contractors are classified under the federal Fair Labor Standards Act (FLSA). Starting March 11, 2024, they're hitting rewind on the "economic reality" test – a method they previously used to figure out if a worker is either an employee or an independent contractor.
Even though the DOL took a break from this test, some states and courts stuck with it. Plus, the IRS has been using a pretty similar test. So, if you're an employer, chances are you didn't break a sweat during the DOL's time-out. But now that they're bringing it back, it might be a good idea to double-check how you've been classifying your team members.
Just to jog your memory, the economic reality test looks at six things:
1. Opportunity for Profit or Loss: Can the worker make or lose money in their gig?
2. Relative Investments: Who's putting in the most cash – the worker or the employer?
3. Degree of Permanence: How long is this work thing gonna last?
4. Nature and Degree of Control: Who's calling the shots – the boss/company or the worker?
5. Essentiality of Work: Is the job crucial for the boss's business?
6. Worker's Skill and Initiative: How skilled and proactive is the worker?
Oh, and heads up – some states like NJ and California have tougher tests (ABC test, anyone?). So, if you're doing business here (or there, or anywhere where the state's test are more rigid than the DOL), make sure your workers pass that state-specific exam.
For all the nitty-gritty details on the DOL test, the IRS test, and what each state is cooking up, we suggest staying in the loop by visiting the DOL's site often, or scheduling a consultation with the ASE Group team.
