Employee v. Independent Contractor – Final Rule Mar 2024

Once again, the federal government is weighing into the question of whether a worker is an employee or an independent contractor. As you know, the “answer” to this question is crucial for tax and labor law purposes. It can be very expensive for an employer if a worker is mischaracterized. 

Under a “new” rule adopted by the Department of Labor, the government is returning to the “totality-of-the-circumstances analysis” economic reality test wherein the various factors used to assess a worker’s status do not have a predetermined weight and are considered in view of the economic reality of the whole activity.  

The Department did retain its longstanding interpretation that economic dependence is the ultimate inquiry, and that an employee is someone who as a matter of economic reality, is economically dependent on an employer for work—not for income.  The phrase “independent contractor” under the rule, “refers to workers who, as a matter of economic reality, are not economically dependent on an employer for work and are in business for themselves.

The final rule provides guidance on how six “economic reality” factors should be considered. They are:

1. opportunity for profit or loss depending on managerial skill;
2. investments by the worker and the potential employer;
3. the degree of permanence of the work relationship;
4. the nature and degree of control;
5. the extent to which the work performed is an integral part of the potential employer’s business; and
6. skill and initiative.

As always, the rule recognizes that additional factors may also be considered if they are relevant to the overall question of economic dependence. Also – as always – merely having a written “Independent Contractor” agreement in place does not, in and of itself, determine the worker’s status.

If you have questions regarding the independent contactor rule as an employer, or you believe your employer is misclassifying you as an employee, please contact us today.