In the past we’ve written about how to legally work with freelancers in your small business. Part of working with freelancers is making sure they’re just that – freelancers, not employees. The Department of Labor has guidelines to determine if someone who works for your business can be classified as an employee or freelance worker. Recently, the DOL has revised its interpretation of the Fair Labor Standards Act’s classification provision in determining if a worker is a freelancer (or “independent contractor”) or an employee. 

A Summary Of The Update

This is an update to the September 2020 ruling on independent contractors. This ruling covered a test for determining whether someone is an independent contractor or employee. Since September 2020, the DOL has examined two main factors: the nature and degree of workers’ control over their work, and the opportunity for profit or loss based on initiative, investment or both.

The update to the ruling adds additional factors for the DOL to examine. The new factors are considered “less probative than the core factors,” mentioned above. This includes the amount of skill required for the work; the degree of permanence of the working relationship between the potential employer and worker; and whether work is part of an “integrated unit of production”. These last three factors will be of lower impact on decision making than the original core factors. 

How Does This Impact Small Businesses?

While this change purports to make the independent contractor inquiry less burdensome, small businesses should still adhere to some of the traditional guidance related to independent contractors, such as maintaining an executed independent contractor’s agreement, exercising no control over the contractor’s work, and making sure the independent contractor is an actual business. 

The focus on the independent contractor being “in business for themselves” is now more paramount and the factors to determine the same will be more probative. It is important that small businesses understand what that means for their workforce. Because the department of labor will weigh the employer’s control over the work more heavily and give greater deference to the worker’s opportunity for profit or loss, it is more important than ever that small businesses obtain legal assistance when determining whether these types of relationships make sense for their businesses.   

How Could The Biden Administration Impact This Ruling?

This new ruling was published on January 7th 2020, and is set to take effect 60 days later. During this time, the US Government will change from the Trump Administration to the Biden Administration. It is possible that the Biden administration could choose to rescind the rule before it is in effect. The current ruling has been critiqued for its potential negative financial impact on workers. 

Do you need help writing or reviewing contracts for employees or contractors? Get in touch!

The information contained in this blog is provided for informational purposes only and should not be construed as legal advice. The content and interpretation of the law addressed herein is subject to revision based on the latest developments in the law. Only information provided in attorney/client relationship created by an executed engagement letter should be relied on as legal advice. You should not act or refrain from acting upon any of this information without entering into such a relationship either with TLG or with other legal counsel.