The United States Department of Labor has issued a final rule, effective March 11, 2024, governing the analysis of whether a worker is an independent contractor or an employee. The rule adopts a six-factor, “totality-of-the-circumstances” analysis of the potential employer/worker relationship and is similar to the test already used by the New York State Department of Labor. All of the circumstances are analyzed as a matter of whether as an “economic reality,” the worker is economically dependent on the potential employer for work or is independently running his or her own business.
Crucially, it must be understood that each Department of Labor will most likely use an employee friendly approach in applying all of the factors, which are equal in weight as to the ultimate decision. The six factors are:
Opportunity for profit or loss depending on managerial skill;
Investments by the worker and the potential employer;
Degree of permanence of the work relationship;
Nature and degree of control;
Extent to which the work performed is an integral part of the potential employer’s business; and
Skill and initiative.
Given the factors and mindset, there are many workers wrongfully classified as independent contractors, and therefore tax withholding has not occurred, workers’ compensation and disability insurance premiums are unpaid, and New York State paid sick leave has not been provided, among other issues.
Employers should therefore immediately audit their independent contractor relationships with Paul F. Keneally or another member of the Underberg & Kessler Labor & Employment Law Practice Group. If you have any questions regarding the final rule, please call Paul at (585) 258-2882 or email pkeneally@underbergkessler.com.