6 ways to know if your workers are independent contractors

Do you employ independent contractors? Read on for a new rule that could impact you.

The Department of Labor finalized a rule under the Fair Labor Standard Act that takes effect on March 11, 2024. Employers will need to consider six factors to determine an independent contractor’s status. If you get it wrong, you could end up violating the minimum wage and overtime provisions of the FLSA.

Here are the factors:

Factor No. 1: Opportunity for profit or loss depending on managerial skill: Ask yourself if your workers can negotiate their pay for the work they provide. If they can’t, they’re probably employees, not independent contractors.

Factor No. 2: Investments by the worker and the potential employer. This isn’t just dollar values on either side. You have to look at all types of investments.

So, let’s say a worker has to invest a lot of their own money in equipment, tools, or training to do their job. Then they’re more likely an independent contractor. But if the company is providing most of the training and supplies, then the worker’s more likely an employee.

Factor No. 3: Degree of permanence of the work relationship. If the work relationship is indefinite, that’s more likely an employee rather than an independent contractor.

Factor No. 4: Nature and degree of control. Obviously, you have to comply with laws and regulations. But if you have your own compliance methods or standards, you likely have employees, not independent contractors.

Factor No. 5: Extent to which the work performed is an integral part of the potential employer’s business. Someone doing work that’s critical, necessary, or central to your business is probably an employee.

Factor No. 6: Worker’s skill and initiative. Specialized skills don’t necessarily distinguish an employee from an independent contractor. If you’re using those skills in connection with a business-like initiative, then the worker is probably an independent contractor.

The DOL also published a list of frequently asked questions on its website.

Let us know if you need help determining if your workers are employees or independent contractors.