New Federal Independent Contractor Rule

It’s not just California!  Earlier this month the U.S. Department of Labor published its final rule regarding independent contractor classification. The new rule is effective on March 11, 2024, and adopts a multi-factor test under the Fair Labor Standards Act.  The multi-factor test will make it much more difficult to classify workers as independent contractors under federal law.

The new test weighs six factors equally:

• The degree to which the potential employer controls the work;
• The worker’s profit or loss opportunity;
• The worker’s and the potential employer’s investments in equipment and materials;
• The degree of permanence of the work relationship;
• The worker’s skill level; and
• The extent to which the work is an integral part of the potential employer’s business.

Under California’s “ABC” test, remember, workers are presumed to be employees unless the hiring entity can demonstrate that: 

• The worker is free from control and direction of the hiring entity in connection with the performance of the work;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is engaged in an independent business of the same nature as the work performed for the hiring entity.

Yes, things just became more complicated for multi-state employers.

To avoid the significant potential liability in this area, do not treat individual workers as contractors.  Ever. You may have “employees” and “vendors.”  At a minimum, vendors operate their own separate business, have a federal taxpayer identification number, and perform work for several entities.  That’s just how it is, folks. 

You can review additional guidance on the new DOL rule here.