U.S. Department of Labor Issues Final Rule on Employee vs. Independent Contractor Classification

AAFCPAs would like to make clients aware that the U.S. Department of Labor issued its final rule on employee versus independent contractor classification under the Fair Labor Standards Act. Effective March 11, 2024, this final rule provides guidance on how employers determine employee versus independent contractor status. Relying on a multifactor economic reality test, the rule affirms that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. No one factor is weighted more or less than another. This ruling is of critical importance to clients that hire independent contractors.

Organizations should be aware of federal and state rules for properly classifying employees or independent contractors. If it is determined that an independent contractor relationship exists, make sure those individuals receive a completed Federal Form W-9 before hiring them as an independent contractor, so you obtain information necessary to properly report payments to the payee, the IRS, and state agencies. Keep in mind that companies required to file 10 or more information returns (1099-NEC, 1099-MISC, W-2, etc.) must do so electronically with the IRS.

AAFCPAs advises that clients factor in their state’s laws for final determination. Note that Massachusetts is an employee-friendly state, and its three-part test remains unchanged. In similar news, the Massachusetts U.S. Attorney General recently sued Uber for what is believed to be Uber’s misclassification of workers as independent contractors. This case was launched on May 13 and is expected to be finalized in June.

If you have questions, please contact Stacie Amaral Field, CPA, MBA, Director, Tax at 774.512.4103 or sfield@nullaafcpa.com, Erica Nadeau, CPA, MST, Tax Partner at 774.512.4111 or enadeau@nullaafcpa.com—or your AAFCPAs Partner.