What’s on the Fed’s Radar? Part 4 – Independent Contractors

U.S. Capital Building with title - What's on the Fed's Radar - Series - Part 4 Independent Contractors

Thank you for your patience in waiting for Part 4 of our 4 part series, “What’s on the Fed’s Radar?” You can find Part 1, 2, and 3 at the links below.

What’s on the Fed’s Radar Part 1 – FLSA

What’s on the Fed’s Radar Part 2 – OSHA

What’s on the Fed’s Radar Part 3 – FMLA

How do you classify an independent contractor? I’ll tell you how — CAREFULLY.

Regulations are often murky and confusing. Independent contractor classification is on the Fed’s radar.

FLSA and the IRS classify under different criteria, we’ve broken that down for you here.

FLSA offers a 6 prong “Economic Realities Test”:

  • Extent of work performed
  • Worker’s managerial skills affect his/her opportunity for profit and loss
  • Worker investment in facilities and equipment
  • Worker’s skill and initiative
  • Permanency of the relationship
  • Nature and degree of control by the employer

IRS offers a 3 prong test:

  • Behavioral control
  • Financial control
  • Relationship of the parties

What You Need to Know

The Department of Labor (DOL) is strengthening its own enforcement of employee classification rules. They have granted an $8.2 million pot to be split between 19 states to enhance misclassification auditing programs. The DOL, EEOC, and IRS are aggressively auditing employers.

In addition, four states have been granted “high performance bonuses” totaling, $2,000,000 to be split between themselves in order to beef up misclassification auditing programs. Many states have also entered into a Memorandum of Understanding with the federal government to share information resulting from audits – so both the Feds and the states can increase their tax revenue.

Independent contractors are on the Fed’s radar, make sure your business is classifying correctly.


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