Just weeks before President Biden took office, the Trump administration took action to change how employers determined independent contractor status. Now, the U.S. Department of Labor (DOL) is rescinding those regulations, returning the country to the guidelines set by previous administrations. Here is a brief overview of these new (old) regulations.

Independent Contractor Status

If it seems that the definition of “independent contractor” changes regularly, it’s because it does. This is an issue created by the Fair Labor Standards Act (FLSA). While the FLSA clearly defines what constitutes an “employee,” it doesn’t clearly define independent contractor status.

That leaves the job of defining “independent contractor” to regulators, whose boss — the President of the United States — changes every four or eight years. So, now employers may need to reclassify certain “gig workers” as employees — giving them all the financial benefits and protections provided by the FLSA.

A Need for Change

In explaining its change, the DOL stated that the Trump administration’s definition of independent contractors was not used by the courts or supported by the FLSA. It also argued that the Trump-era rule would “minimize other factors courts have traditionally considered, making [it] less likely to establish that a worker is an employee.”

Now, the variables that determine a worker’s status that were subordinated by the Trump administration rules are now given more weight. A key variable that is now returning is the degree of permanence of the working relationship between a worker and the potential employer.

Impact on Your Business

These regulations may impact your business in several ways, particularly your tax situation, as employment status has a role in determining payroll taxes. However, determining if a person is an employee or independent contractor can be difficult. Even the IRS website admits this, saying, “”There is no magic or set number of factors that ‘makes’ the worker an employee or independent contractor, and no one factor stands alone in making this determination…. Factors which are relevant in one situation may not be relevant in another.”

If you think any workers you’re treating as independent contractors might be deemed employees, now is a good time to take a fresh look at the situation, especially with these new DOL regulations. Your actions can determine whether you’ll need to add more workers to your payroll, pay higher wages or provide certain benefits. At Filler and Associates, we can help sort through some of these tax and regulatory challenges. Contact us for more info.