DOL issues proposed worker classification regs

 

The Department of Labor (DOL) recently issued proposed regulations (RIN 1235-AA43) to clarify the analysis for determining employee and independent contractor classifications under the Fair Labor Standards Act (FLSA). The DOL states that these proposed regulations are more consistent with judicial precedent and the FLSA’s text and purpose than the existing worker classification rules that were issued in January 2021.

 

The January 2021 rules included a five-factor test that favored independent contractor classifications, largely by focusing on two rules:

  • The nature and degree of the worker’s control over the work
  • The worker’s opportunity for profit or loss based on personal initiative or investment

 

The new proposed rules would essentially adopt the January 2021 rules by incorporating the two aforementioned factors into a six-factor test, which would also consider:

  • Investments by the worker and the employer
  • The degree of permanence of the working relationship
  • The extent to which the work performed is an integral part of the employer’s business
  • The degree of skill and initiative exhibited by the worker

 

The proposed rules also state that DOL may consider additional factors under certain circumstances.

 

Notably, the proposed rules may make it more difficult to classify certain workers as independent contractors (instead of employees subject to the FLSA rules). Although these proposed regulations do not directly apply with respect to worker classification determinations for tax purposes, taxpayers should anticipate significant commentary and challenges to the new rules which could lead to future tax implications.

 

 

Contact:

 
 
Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.

 
 

More tax hot topics