Although it’s being challenged, as of now the U.S. Department of Labor (DOL) regulation applying a new, multi-factor test for worker classifications is set to take effect on March 11, 2024. The new Fair Labor Standards Act (FLSA) rule is known as the Economic Realities Test and applies 6 factors equally based on a “totality of circumstances of the working relationship”. To determine whether a worker is an employee or independent contractor, DOL provides the following criteria to guide worker classification assessments:
Opportunity for profit or loss depending on managerial skill,
Investments by the worker and the employer,
Permanence of the work relationship,
Nature and degree of control,
Whether the work performed is integral to the employer’s business, and
Skill and initiative.
The DOL has created a Fact Sheet to elaborate on each of the above six criteria and notes that additional factors can be taken into consideration for the assessment.
Because the employer-employee relationship is regulated by a variety of other federal, state and local laws and regulations, there are far-reaching impacts of worker misclassifications. The laws and regulations listed in the graphic are not representative of an exhaustive list of employment compliance requirements. Thus, the data in scope for the worker classification assessment may extend beyond pay data, benefits data, and tax data. Moreover, the insights gleaned from that data may also shed light on other risks or issues in the workplace. Therefore, if you’re not already auditing the status of workers in your organization, keep in mind that the clock is ticking to make updates. Compensation and penalty implications are on the line for compliance failures. It’s imperative that employers make compliance a business necessity by establishing proactive, data-driven strategies to avert potentially avoidable consequences.
At TULIP, we assess employment-related compliance with a 360-degree lens to identify risks holistically across the entire business operating model including strategy, structure, processes, people, and technology. To learn more about TULIP’s pay compliance and supporting tech advisory services, email us at info@tulipadvisory.com and reference “Pay Compliance” in the subject line. We look forward to hearing from you! #FLSA #DOL #EEOC #FMLA #ACA #Payroll #PayCompliance #EmploymentLaw #Compensation #Overtime #HR #PayAudit #PayEquity #PayPractices #DEI #WorkplaceExperience #CostAvoidance #BottomLine
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