Older workers often find themselves unceremoniously dumped from their full-time jobs years before they are ready to retire. What is their next step? Hawking their services as an independent contractor, of course.
But is the worker really an independent contractor and not an employee? Only your friendly government knows for sure, and it changes its mind quite often. On January 10, 2024, the Department of Labor’s final rule on worker classification under the Fair Labor Standards Act, was released. It is effective March 11, 2024.
How to Classify a Worker
The Department has set out 6 factors to consider when classifying a worker. Each factor is given equal weight. The rule confusingly states that a “totality of the circumstances economic reality analysis” should be applied. Feel free to re-read that statement several times because it sounds like typical double-speak.
Ambiguity aside, the stakes are high for both the worker and the business. If the business mistakenly classifies the worker as an independent contractor when the government would consider that person an employee, then the business could have to pay substantial penalties for non-compliance under the Fair Labor Standards Act.
Businesses and contractors everywhere are reviewing their existing contracts and drafting new ones.
Six Crucial Factors for Identifying an Employee vs. Independent Contractor
- The worker’s opportunity for profit or loss and exercise of managerial skill
- The relative investments made by the worker and the potential employer
- The degree of permanence of the work relationship
- The degree of control an employer has over the work
- The extent to which work performed is integral to the employer’s business
- The use of a worker’s skill and initiative
Simple, right? Unfortunately, it is a symbiotic analysis. The business cannot make it without knowing about your relative investments, managerial skills, opportunity for profit or loss, and skill and initiative. You cannot make it without knowing how your work is integral to the overall business, the degree of permanence in the work relationship, the control the employer will exercise, and the relative investment the business will make.
What will this mean for the future of independent contracting? How will that affect the older generation? More importantly, how will it affect you? Let’s talk again in a year, shall we?
The Corporate Transparency Act
Another recent development is the Corporate Transparency Act (or CTA). This little gem was effective on January 1, 2024. The CTA targets all types of business entities, especially small LLCs and partnerships.
Under the CTA, entities (called “reporting companies”) must disclose certain information about the company and its owners to the US Department of the Treasury’s Financial Crimes Enforcement Network. The reportable information includes the company’s legal name and any “doing business as” names, the street address of the business, the jurisdiction in which the business was formed, and the tax ID number. But that’s not all, folks.
What is Included in the Corporate Transparency Act?
The reporting company must provide information about the people who hold 25% or more ownership interest in the company. That includes the person’s full legal name, date of birth, current address, and unique identification number.
The CTA targets small entities. Some businesses that employ more than 20 full-time employees, filed a return showing more than $5 million in gross receipts or sales, and have a physical office located in the US are exempt from reporting.
Hammerle Finley is Here to Help With Your Business Law Questions
The CTA is a big deal. While you are deciding if you are an independent contractor or an employee, you need to also review your CTA obligations. The government is looking over your shoulder. To ensure that you understand your CTA obligations, you may need to hire an attorney to help you. Contact the experts at Hammerle Finley Law Firm today.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
