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Department of Labor Delays New Independent Contractor vs. Employee Rule

The U.S. Department of Labor (DOL) has delayed the implementation of its new rule regarding how to classify an individual as an employee vs. an independent contractor. The White House issued a regulatory freeze in January which postpones any rulings that have been issued but have not yet taken effect.

 

This included the DOL’s clarification on worker classification which was originally set to kick in on March 8th, 2021. The rule will now take effect on May 7, 2021.

The new rule was designed to clarify standards for classifying individuals as either independent contractors (1099) or standard employees (W-2), by using the four following measures as guidelines:

 

Economic Realities Test– The test was designed to determine if an individual was economically independent (contractor) or dependent on an employer (standard employee.)

 

Core Factors­– Two core factors were established to help determine classification. They include the nature and degree of the worker’s control over their own work along with their opportunity for loss or profit based on their own initiative and effort.

 

Three Additional Factors­– If the core factors were not enough to determine the proper classification, three additional factors were established that included the amount of skill required for the job, the degree of permanence in the position, and if the work in question was part of an integrated unit of production.

 

Actual Practice Relevance­– Ultimately, actual practice is more relevant and should be weighed heavier than what is contractually or theoretically possible.

The regulatory freeze that was enacted in January by the current administration will provide the DOL with additional time to further review this initial rule, but it is still unclear if they will make any amendments or leave as is.

 

Is there anything Payroll Systems can help you with as you accommodate rapid legislation changes? Reach out and talk to us about the easy-to-scale solutions you need for your business.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.