Businesses have certain obligations to employees, and those legal responsibilities sometimes diminish the total profits that the organization generates. Many companies are therefore eager to reduce staffing costs. There are many ways to achieve that goal, including some that violate federal law and the rights of employees. Companies may misclassify their workers to reduce their tax and insurance obligations while simultaneously sidestepping crucial employee protection laws.
In recent years, due in part to the rise of the gig economy, worker misclassification has become a serious issue. Employers may treat workers like employees and rely on them for key operational functions while calling those workers independent contractors, a move that allows them to minimize financial obligations and openly violate numerous employment laws. Misclassified workers have to pay more in taxes and don’t have protections extended to other workers, like the right to minimum wage and overtime pay.
The federal government has recently announced a final rule regarding worker classification that may help those who should rightfully be classified as employees to fight back against this type of misconduct.
What is the new rule for worker classification?
Previously, the standard for employee misclassification was somewhat unclear and focused only on two main elements. The new rule is more thorough and may help workers more easily establish that the company that hired them also misclassified them.
As of March 11, 2024, a new rule about worker classification takes effect. There are now six key factors that influence whether a worker is an independent contractor or an employee. Those factors include:
- how much control the company has over the worker
- if the job requires special skills
- the permanence of the relationship
- the investments workers make
- whether the work is an integral part of the company’s business
- the worker’s opportunity for profit or loss
Critics of the new rule note that there is no clarity about how much each of these factors influences the final determination of a worker’s status. Several high-profile companies openly flaunting employment laws continue to assert that these new rules should not impact their operations.
Misclassified workers can sometimes band together to take legal action against a company. They could seek compensation for unpaid overtime and other wage law violations. They could also act on their own to potentially obtain unemployment benefits or workers’ compensation coverage by legally challenging the employer’s decision to classify them as independent contractors.
Understanding the standards that apply to worker misclassification claims may benefit those who believe that a company has treated them as an employee while classifying them as a contractor.