Do you use Independent Contractors? New guidance just issued from the US Department of Labor.

A lot of us in the construction industry use independent contractors. If you are one of the ones that does, you should know that the US Department of Labor came out with their final rule yesterday on when someone can be classified as an Independent Contractor.

FAQs from the Department of Labor can be found HERE. Basically, the government is trying to make sure that employers don't take advantage of employees by misclassifying them as a 1099 Independent Contractors when they should really be a W2 employee.

The one portion that I believe may affect some construction owners is that an Independent Contractor can't be solely dependent upon you for their income. It's worded this way - "... a worker is an employee and not an independent contractor if they are, as a matter of economic reality, economically dependent on the employer for work." There are other factors to consider, because of course there isn't any easy or clear answer to who classifies as an employee vs an Independent Contractor. But I would definitely talk to your accountant for guidance if you have a 1099 Independent Contractor that works solely for you. This is NOT something you want to get wrong.

Here's the substance of the rule directly from the USDOL:

"This final rule continues to affirm that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. Consistent with judicial precedent and the Department’s interpretive guidance prior to 2021, the final rule applies the following six factors to analyze employee or independent contractor status under the FLSA:

(1) opportunity for profit or loss depending on managerial skill;

(2) investments by the worker and the potential employer;

(3) degree of permanence of the work relationship;

(4) nature and degree of control;

(5) extent to which the work performed is an integral part of the potential employer’s business; and

(6) skill and initiative.

The final rule provides detailed guidance regarding the application of each of these six factors. No factor or set of factors among this list of six has a predetermined weight, and additional factors may be relevant if such factors in some way indicate whether the worker is in business for themself (i.e., an independent contractor), as opposed to being economically dependent on the employer for work (i.e., an employee under the FLSA)."

With tax season upon us, this is a great time to ask your accountant about any subcontractors you might utilize that you have concerns about their classification. Bring it up during your tax prep/tax session and maybe you won't even be charged extra! :)