The Department of Labor (DOL) has recently finalized a new rule regarding independent contractors, which may significantly alter the landscape for employers. With an effective date of March 11th, these changes reintroduce additional criteria for determining independent contractor status.
Understanding the DOL Changes:
Previously, the DOL’s focus was on two main criteria: the worker’s opportunity for profit and loss and the degree of control the employer has over their work. However, the updated rule expands these to six factors, reintroducing concepts that add layers of consideration for businesses and those operating as independent contractors. These include the skill and initiative required, the permanence of the working relationship, and notably, whether the work is integral to the business—a criterion that could significantly affect many employers. As of this posting, there are already multiple court cases being pursued that challenge the new rule.
DOL Rule Change Implications:
The reinterpretation of this rule does not simplify compliance; rather, it complicates the system, particularly affecting those in industries reliant on freelance and gig economy workers. Based on these revised criterion, employers should examine their relationships with contractors more closely, reassessing contracts, and potentially redefining work arrangements to ensure compliance.
Suggested Next Steps:
Contract Reevaluation: Ensure that there is a clear, written contract with each independent contractor that includes language relative to the six criterion.
Legal Consultation: Consider seeking legal advice to navigate the complexities of the new rules and to draft or update contracts.
Stay Informed: Monitor legal challenges and court decisions related to these rules, as they may impact how this rule is written and/or implemented.
The Department of Labor’s revised independent contractor rule may present a challenge for employers, if implemented as it is currently written. By understanding the criteria and staying up to date on legal changes, employers can be prepared to make changes, as needed. For further HR guidance and resources on compliance, join our email list.