W-2 or 1099? Independent Contractor Final Rule to Become Effective March 11, 2024

Posted by: Karen Booher on February 3rd, 2024

On Jan. 9, 2024, the U.S. Department of Labor’s Wage and Hour Division (WHD) released its final rule on worker classification, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act”.

The final rule, officially published on Jan. 10, will become effective on March 11, 2024 – 60 days after it is published in the Federal Register.

Under the federal Fair Labor Standards Act (FLSA), W-2 employees are entitled to minimum wage, overtime pay, and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies. Unlike employees, independent contractors can’t form unions and can’t file unfair labor practice charges with the National Labor Relations Board (NLRB).

How does this Final Rule Vary from the Previous Rule?

The final rule rescinds a 2021 rule in which two core factors – control over the work, and opportunity for profit or loss – carried greater weight in determining the status of independent contractors.

Under the new rule, employers would use a totality-of-the-circumstances analysis, in which none of the factors carry greater weight. The new test includes six factors:

1. The degree to which the employer controls how the work is done.
2. The worker’s opportunity for profit or loss.
3. The amount of skill and initiative required for the work.
4. The degree of permanence of the working relationship.
5. The worker’s investment in equipment or materials required for the task.
6. The extent to which the service rendered is an integral part of the employer’s business.

“No factor or set of factors has a predetermined weight, and a totality of the circumstances of the working relationship must be considered,” Jessica Looman, administrator of the WHD, said in a Jan. 8 press briefing. “The six factors are not exhaustive, nor are any of them more important than any others.”

The Benefit of Utilizing J. Kent Staffing – Ensuring Compliance

As before, the burden is on companies to correctly classify their workers, or risk possible misclassification lawsuits under the FLSA. This can be problematic for businesses, particularly small businesses, because they don’t necessarily have the staff or money to deal with ensuring compliance.

All J. Kent Staffing contingent/temporary/contract workers are W-2 employees. If you need additional resources to complete a project, or interim help to cover absences, leaves, or seasonal needs – we can provide your headcount without you having to take on the load of additional employees or risk improperly classifying an independent contractor.

Already have your worker identified? For a reduced bill rate, J. Kent Staffing can “payroll” your selected individual and become the “Employer of Record” for as long or short a time as needed.

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Sources:

1. SHRM HR Policy Briefing, 1/16/2024, “WHD Releases Independent Contract Final Rule”.
2. SHRM Workplace Compliance News, 1/12/2024, “DOL’s Rule Narrows Scope of Independent Contractor Classification”, by Leah Shepherd, January, 10, 2024.
3. SHRM HR Daily Newsletter, 1/9/2024, “DOL Rule Modified Independent Contractor Classification”, by Leah Shepherd, January 9, 2024.