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U.S. Dept. of Labor Independent Contractor Rule

In January 2024 the U.S. Department of Labor published a new Rule for determining whether a worker is an employee or an independent contractor. This Rule takes effect on March 11, 2024.

This Rule uses an “Economic Reality Test” to determine employee or independent contractor status. This test uses the following six factors:

            (1) opportunity for profit or loss depending on managerial skill;

            (2) investments by the worker and the potential employer;

            (3) degree of permanence of the work relationship;

            (4) nature and degree of control;

            (5) extent to which the work performed is an integral part of the potential employer’s business; and

            (6) skill and initiative.

New York State agencies and courts have long employed a “Direction and Control” test to determine independent contractor status. This test considers many factors, including whether the worker:

            (1) worked at his own convenience;

            (2) was free to engage in other employment;

            (3) received fringe benefits;

            (4) was on the employer's payroll; and

            (5) was on a fixed schedule.

We reported several months ago on the NYS Freelance Isn’t Free Act, which takes effect in May 2024. This Act gives new legal protections to independent contractors in New York.

Some employers treat workers as independent contractors and not employees to save on employment-related expenses such as payroll taxes, workers compensation insurance, unemployment insurance and overtime. This can be an expensive mistake if the worker is found to have been misclassified as an independent contractor instead of an employee. These cases often arise when a worker who was treated as an independent contractor applies for unemployment insurance, and the NYS Labor Department determines that the worker was actually an employee. The NYS Labor Department, Workers Compensation Board, and Tax Department pursue these cases very aggressively.

It is prudent for business owners who treat workers as independent contractors and not employees to closely examine those relationships to avoid costly legal complications.

Please let us know if Colligan Law can assist with any of your employment law needs.