Reconsidering Independent Contractors

1099s serve a valuable purpose for employers. Not the least of which is a 30% savings compared to W2s. Since the 40s, the Feds have applied an economic reality test to determine whether a worker is a W2 or 1099. The question is often if the person is economically dependent on that employer for work (a W2) or is in business for themself (a 1099). The government usually performs a holistic analysis, considering many factors to determine status, with no characteristic having predetermined significance.

These factors often include the opportunity for profit or loss, investment, permanency, control, whether the work is an integral part of the employer’s business, and skill and initiative. In early 2021, the Feds published a rule titled “Independent Contractor Status Under the Fair Labor Standards Act” (2021 IC Rule), providing guidance on the classification of independent contractors under the FLSA applicable to workers and businesses in any industry.

The 2021 IC Rule changes things. So reconsider proper classification of how to determine whether a worker is an employee or an independent contractor under the FLSA, beyond the old five economic reality factors.