Question: So, the Department of Labor just dropped this new rule for classifying workers as employees or contractors. How does that affect my startup, exactly?
Answer: The Department of Labor (DOL) is cracking down on how startups (and really, all companies) classify workers, and it could mean big changes for your team.
The DOL basically laid out a multi-point checklist they’ll use to decide if someone working for you is an employee or an independent contractor. This checklist covers things like how much control you have over their work, how permanent the gig is, and even what kind of skills they bring to the table.
Why does it matter?
Big time. If you misclassify someone as a contractor, you could be on the hook for back pay, benefits, and even penalties. That could spell trouble for any startup, let alone a young one like yours.
Okay, now what?
Don’t panic! Instead, let’s break down the key points and see what you can do:
- Your Control: How much do you tell them what to do, when to do it, and how to do it? The more control you have, the more likely they’re an employee.
- The Length and Permanence of Relationship: Is it a one-time project or ongoing work? Ongoing gigs lean towards employees.
- Their Investment: Do they have their own equipment, marketing, or business expenses? More investment = contractor.
- Their Skills: Are they specialized and independent, or reliant on your training? Specialization screams contractor.
- Their Role in Your Business: Are they doing core tasks or just side stuff? Core tasks = employee.
- Their Opportunity for Profit: Are they able to negotiate rates? Accept or decline jobs? Are they marketing to expand their business? If “yes”, then “contractor”.
- Other Factors: Stuff like benefits, taxes, and scheduling can also play a role.
What You Can Do:
- Review Your Contracts: Make sure they reflect the checklist and set clear guidelines and allow for ample “contractor” wiggle room.
- Talk to Your Team: Be transparent about the changes and clarify expectations.
- Seek Expert Advice: A lawyer or accountant can help you navigate the legalese and avoid pitfalls.
This new rule adds another layer of complexity to managing your startup, but it’s not a game-changer. By understanding the checklist and taking proactive steps, you can protect your business and build a strong, compliant team.
Remember: This is just a summary, and the actual rule is longer and more detailed. Consult with a legal or tax professional for specific guidance on your situation.
Hope this Q&A helps you navigate the new Independent Contractor Test! And hey, if you have any more questions, just send ’em my way.
Bonus Tip: Check out the DOL’s website for the full rule and more information: https://www.dol.gov/newsroom/releases/whd/whd20240109-1