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Department of Labor again changes rules on sub-contractor classification

While the new rule takes effect in March, it really parrots the old rules and tests that existed before 2021. Misclassification of workers as subcontractors has been a hotbed of enforcement for as long as we have been practicing. It usually is a losing battle if challenged.

The new rule states that a worker should be classified as an employee if they are “economically dependent” on a company. This would seem to be saying that a worker only has this one source of income. However, there is a six-prong test.

1.  Does the worker have an opportunity for profit or loss?

2. Does the worker have an investment in the relationship (their own tools or capital equipment)?

3. The degree of permanence in the relationship

4. The nature of control over the workers activities

5. The extent to which the work is essential to the business.

6. Use of the workers’ skills

These have been the benchmarks that IRS has used for decades and each “aligns with longstanding judicial precedent”, according to the Department of Labor which pretty much pegs any worker as an employee.

This is a battle you cannot win. So, tread lightly in this area.

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