New rule from DOL on independent contractors: What does it mean for employers?

On Behalf of | Apr 2, 2024 | Employment Law -- Employer |

The Department of Labor recently announced a new rule concerning the classification of independent contractors. This rule could have significant implications for small business owners who rely on freelance workers.

There are certain key points worth knowing about the new rule and how it may affect your business.

Understanding the new rule

The new rule, which took effect in January 2024, aims to clarify the criteria used to determine whether a worker is an independent contractor or an employee. It establishes an “economic reality” test. This test focuses on factors such as the nature and degree of control over the work, the worker’s opportunity for profit or loss and the degree of skill required for the job.

Impact on small business owners

For small business owners who frequently hire independent contractors, the new rule may require a reevaluation of their classification practices. Under the economic reality test, some workers who were previously considered independent contractors may now be full-fledged employees. This could result in increased costs for businesses. Payroll taxes, benefits and compliance with labor laws may all experience changes.

Potential challenges

While the new rule aims to provide clarity, it may also introduce challenges for small business owners. Determining whether a worker meets the criteria for independent contractor status can be complex, and misclassification can lead to legal consequences. Small business owners will need to carefully review their relationships with freelance workers and ensure compliance with the new rule.

Steps for compliance

To navigate the changes brought about by the new DOL rule, small business owners should take proactive steps to ensure compliance. This may include conducting a thorough review of existing independent contractor relationships, seeking guidance from legal or HR professionals and implementing policies and procedures to properly classify workers.

As the new DOL rule on independent contractors goes into effect, small business owners should stay informed about any further developments or guidance from regulatory agencies. By understanding the implications of the rule and taking proactive steps to comply, businesses can mitigate risks and continue to effectively leverage freelance talent.