In early May of this year, the Biden Administration officially made the decision to revoke the previously adjusted Trump era ruling on independent contractor classification.
In January 2021, the Trump administration took advantage of the opportunity to implement final changes to the Department of Labor (DOL) before leaving office. The “final rule” that they implemented stood largely unchanged from the original ruling which established a tiered test to determine employee versus contractor status as part of the Fair Labor and Standards Act (FLSA).
The updated proposal established a two-part analysis to determine whether a worker’s correct status is an independent contractor or employee. The “core factors” stated are as follows:
- The nature and degree of control over the work.
- The worker’s opportunity for profit or loss is based on initiative and/or investment.
In addition to the “core factors,” the DOL also listed three other factors to support the analysis. These factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is part of an integrated unit of production.
Following the ending of Trump’s presidency, the DOL has announced that the ruling determined by the Trump administration was inconsistent with FLSA and was thought to have a negative impact on both workers and businesses.
As such, the previously implemented “final rule” was rescinded under the current Biden Administration.
Going forward, companies will be responsible for judging their workers based on the existing “economic reality” test until another proposal can be made by the Biden administration.
It should be noted that throughout President Biden’s campaigns, he spoke of his intentions to promote a federal standard for independent contractor classification in alignment with the existing method utilized in California.
This method includes the use of the multifactor “ABC” test. Under the ABC test a worker is classified as an employee unless they meet all three of the following criteria:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Until further decisions are made, this test will remain the federal determination with regard to independent contractor classification.
For more information or guidance on how to properly classify your employees, call our team at got1099.
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got1099 is a business reporting company providing business analysis reports to companies re: their 1099 independent contractors We do not provide legal advice. Consult with your attorney relating to any legal issues.