We wanted to bring to your attention a recent development from the U.S. Department of Labor (DOL) regarding the classification of workers under the Fair Labor Standards Act (FLSA).

In a recent announcement, the DOL introduced a new rule taking effect on March 11, 2024, which aims to guide employers in determining whether to classify a worker as an employee or an independent contractor.  The new rule rescinds the 2021 Independent Contractor Rule, which the DOL believes is inconsistent with the law and established judicial precedent.

The key highlights of the new rule include:

Economic Reality Test The rule outlines six factors for employers to consider without assigning predetermined weight to any one factor. These factors include:

• opportunities for profit or loss
• financial investment in the work
• degree of permanence of the work relationship
• degree of employer control
• essentiality of the work to the employer’s business
• worker’s skill and initiative

Misclassifying employees as independent contractors can have serious consequences, depriving workers of basic rights and protections. It can affect rights to minimum wage and overtime pay and result in tax and withholding implications.  Worker classification also has tax implications, including income taxes, Social Security, Medicare (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes.

It’s essential for employers to adhere to these new guidelines to ensure proper classification, protect workers, and avoid potential legal and financial repercussions.

For further details, please refer to the Journal of Accountancy Article, which offers a link to the official DOL publication.  Furthermore, if you have specific questions about your situation, please contact your tax advisor.