The Ever-Evolving Maze of Worker Classification Requirements


From Lexology, Dylan B. Saul discusses the requirements under the United States Department of Labor’s new independent contractor rule and also the maze of different legal standards used by state agencies including different standards amoung different agencies in the same state. Dylan writes:

It is important to remember that the new “economic reality” test only governs whether workers are employees or independent contractors for purposes of the Fair Labor Standards Act. The FLSA grants certain protections to employees, like minimum wage assurances and overtime pay. These protections do not apply to independent contractors. Moreover, the FLSA’s minimum wage and overtime pay protections do not apply to most executive, administrative, professional, outside sales, or computer professional employees. Many states have their own versions of the FLSA, or similar “wage and hour laws,” which may exempt different classes of employees or impose additional requirements on employers.

For payroll tax purposes, by contrast, the IRS continues to apply its traditional twenty-factor common law test to determine whether a worker is an employee who should be issued a W-2, or an independent contractor who should be issued a 1099. Some states, like Minnesota, also use the IRS’s twenty-factor test. But other states impose their own worker classification tests, such as California’s stringent “ABC” test or New Jersey’s “right to control” test.

Adding to the complexity, states use a wide variety of tests to determine whether a worker is an employee or an independent contractor for worker’s compensation and unemployment insurance purposes. For example, when determining eligibility for worker’s compensation, Illinois looks to whether the alleged employer had the “right to control” the worker. But Illinois applies the “ABC” test to unemployment insurance claims.

Read the full story at  The Ever-Evolving Maze of Worker Classification Requirements – Lexology

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