This article was written by Brandon White, Director of Human Resources at Helpside. Brandon has more than a decade of experience making complicated employment situations and regulations approachable for small businesses.
On January 10, 2024, the U.S. Department of Labor (DOL) published a final rule that will be effective March 11, 2024. This rule revises the Department’s guidance on how to determine who qualifies as an employee and who qualifies as an independent contractor under the Fair Labor Standards Act (FLSA).
In the United States, nearly 10% of workers are misclassified and 10-20% of businesses have misclassified an employee at some point. Misclassifying employees can result in fines up to $100,000 and deny basic workplace rights for employees such as denial of minimum wage, overtime pay, and other essential protections.
This new rule will reduce the chance of employees being misclassified as an independent contractor. This rule will preserve essential worker rights and establish consistency for those covered by the Fair Labor Standards Act.
How to prevent misclassification
- Behavioral: Does the company control or have the right to control what the worker does and how the worker performs tasks?
- Financial: Are the business aspects of the worker’s job controlled by the payer? This may include how the worker is paid, whether expenses are reimbursed, who provides the tools/supplies etc.
- Type of Relationship: Is there a written contract(s) or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.). Will the relationship continue and is the work performed a key aspect of the business?
It is also important to note that when hiring a worker, the proper paperwork needs to be submitted. For example, independent contractors will need to submit the IRS Form W-9 and an employee will submit the IRS W-4 tax form.
It is important for employers to be aware of this new rule and how to reduce misclassification in the workplace. We have developed a checklist to help employers get started with their evaluations.
If you have questions about the classification of an employee or an independent contractor, contact us at firstname.lastname@example.org.