FLSA Law Update – 1099 Contractors

03 Apr FLSA Law Update – 1099 Contractors

An updated 1099 Contractors rule issued by the U.S. Department of Labor went into effect March 11, 2024. The rule considers six overarching factors in a “totality of the circumstances” analysis to determine whether workers are either dependent on the employer for work or in business for themselves.

The six factors are:

1. How much the employer controls how the work is done
2. If the worker’s opportunity for profit or loss depends on the organization or the worker
3. How much skill and initiative is required for the work
4. How permanent the working relationship is
5. If the equipment or materials required for the work were invested in by the worker or the organization
6. How integral the work being done is to the organization’s actual business purpose

Two of the five factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss—were designated as “core factors” that were given the most weight in the determination.

This change “restores the multi-factor analysis” that has been used by courts for decades in making classification determinations and expands the tests used to determine if there is a contractor or employer relationship beyond the very narrow 2021 regulations.

For additional details, refer to the Final Rule and check out some of these FAQs we think might be helpful:

What is the point of this update? 

The hope is that this ruling will reduce the risk of misclassifying 1099 contractors by creating more detailed and consistent standards

When does it take effect? 

March 11, 2024

What about the “ABC” test? 

The “ABC” test is out and previously used multifactor “economic reality” test is the standard

Does this overrule state and local classification laws? 

Nope, make sure you know and follow those, too

Can a worker choose whether or not they consider themselves a contractor? 

Nope

What if I have more questions? 

For specific questions about this ruling, you can call the Wage and Hour Division’s (WHD) Division of Regulations, Legislation, and Interpretation (DRLI) at 202-693-0406. For questions about the employment classification of a particular worker contact your local WHD District Office.

Original content by HR Ministry Solutions. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.