{"id":5480,"date":"2024-01-16T14:32:12","date_gmt":"2024-01-16T19:32:12","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/new-rules-for-independent-contractors.html"},"modified":"2026-06-11T00:12:00","modified_gmt":"2026-06-11T05:12:00","slug":"new-rules-for-independent-contractors","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/new-rules-for-independent-contractors.html","title":{"rendered":"New Rules for Independent Contractors"},"content":{"rendered":"\n
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New Rules for Independent Contractors<\/h1>\n\n
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\n By Catherine Hodder, Esq.<\/a> | Legally reviewed by Madison Hess, J.D.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

In January 2024, the Biden Administration issued new rules classifying workers: Are they employees or independent contractors? This distinction is important because companies hiring workers as employees must provide benefits and pay minimum wage and overtime pay.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

The U.S. Chamber of Commerce and app-based companies like Uber<\/span> and Lyft<\/span> oppose the ruling because it may increase business costs. Reuters estimates that\u00a0a company may pay 30% more for an employee than an independent contractor<\/span><\/a>.<\/p>\n

The proposed rule<\/span> repeals a Trump-era rule<\/span> that determined a worker\u2019s status<\/span> on two factors: the degree of control<\/span> the employer has on the worker and if the work provides entrepreneurial opportunity.<\/p>\n

The basis of the new multifactor<\/span> test is if a worker is \u201ceconomically dependent\u201d on a company and is harder to show a worker is an independent contractor<\/span> versus an employee.<\/p>\n

The Six-Factor<\/span> Economic Reality<\/span> Test to Determine Economic Dependence<\/h2>\n

In the final rule<\/span>,\u00a0Employee or Independent Contractor<\/span> Classification<\/span> Under the Fair Labor Standards Act<\/span><\/a>\u00a0(FLSA<\/span>), the U.S. Department<\/span> of Labor<\/span> sets forth six factors<\/span> to determine economic independence.<\/p>\n

1.\u00a0 \u00a0 \u00a0\u00a0Opportunity for profit or loss depending on managerial skill<\/span>.\u00a0<\/strong>This prong means the worker can control their \u201ceconomic success or failure\u201d by negotiating pay for work, accepting or declining jobs, advertising and marketing to get more work, and can hire others.<\/p>\n

2.\u00a0 \u00a0 \u00a0\u00a0Investments by the worker and potential employer.<\/strong>\u00a0If the company supplies all the equipment and tools to do a job, this may indicate an employer-employee relationship. However, a worker\u2019s investments<\/span> may prove an independent contractor<\/span> relationship<\/span>. For example, if a worker buys a computer to write articles for a company but also uses it to write articles for other companies, they are more likely an independent contractor<\/span>.<\/p>\n

3.\u00a0 \u00a0 \u00a0\u00a0Degree of permanence of the work relationship<\/span>.<\/strong>\u00a0If the worker works for a continuous and indefinite time and exclusively for a company, that suggests an employer-employee relationship. An independent contractor<\/span> is more likely to have many clients and work on projects for a specified period.<\/p>\n

4.\u00a0 \u00a0 \u00a0\u00a0Nature and degree of control<\/span>.<\/strong>\u00a0Independent contractors<\/span> make their own hours, set pay rates, do not require supervision, and can work for other companies. If a company sets the work schedule and compensation, supervises the work, even electronically, and restricts the worker from working for other companies, then it is an employer-employee relationship.<\/p>\n

5.\u00a0 \u00a0 \u00a0\u00a0Extent to which the work performed is an integral part<\/span> of the potential <\/span>employer\u2019s business<\/span>.<\/strong>\u00a0This factor does not look at a worker\u2019s individual contribution but if their function is an integral part<\/span> of their business. There is an employer-employee relationship where the work is \u201ccritical, necessary, or central to the potential employer\u2019s principal business.\u201d<\/p>\n

6.\u00a0 \u00a0 \u00a0\u00a0Skill and initiative.<\/strong>\u00a0A company that trains a worker to do a job may suggest an employer-employee relationship. A worker who brings their own specialized skills<\/span> may be classified as an independent contractor<\/span>. Still, it is not necessarily a given because a worker can be highly skilled and bring those skills to an employer.<\/p>\n

No one factor<\/span> should determine employee status<\/span>, but these six factors<\/span> should be analyzed by the totality of the circumstances<\/span>.<\/p>\n

The rule goes into effect March<\/span> 11, 2024, however, there may be legal challenges<\/span> since it will affect many businesses.<\/p>\n

The ABC<\/span> Test<\/h2>\n

Some states, however, have their own independent contractor<\/span> rule<\/span>.\u00a0States such as California<\/span> apply an \u201cABC<\/span> Test\u201d for worker classification<\/span><\/a>. Under the ABC<\/span> test, a worker is an independent contractor<\/span> if they can meet these three core factors<\/span>:<\/p>\n

\u00b7 The worker is free from the control and direction of the hiring entity in connection with the performance of the work<\/span>, both under the contract for the performance of the work<\/span> and in fact;<\/p>\n

\u00b7 The worker performs work that is outside the usual course of the hiring entity\u2019s business;\u00a0and<\/p>\n

\u00b7 The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.<\/p>\n

How to Establish Yourself as an Independent Contractor<\/span><\/h2>\n

As an independent contractor<\/span>, you must be in business for yourself. Many workers form\u00a0limited liability companies (LLCs)<\/a>\u00a0to create a business entity for their work and show the worker\u2019s ability<\/span> to work for other companies. An independent contractor<\/span> may work for one company, but they should be able to work for other companies if they choose.<\/p>\n

An LLC offers several benefits, including personal liability protection<\/span> from business operations. For example, if a company sued an LLC, it could only go after the LLC\u2019s assets, not the business owner\u2019s personal assets, even if it is a single-member LLC. An LLC also\u00a0requires less paperwork to form<\/a>\u00a0and maintain than a corporation. Finally, an LLC has a tax structure similar to that of a sole proprietor, where the LLC owner reports profits or losses on their personal income tax form.<\/p>\n

An LLC is indicative of <\/span>independent contractor<\/span> status<\/span> since it shows the worker is in business for themselves.<\/p>\n

Get Legal Help<\/h2>\n

Laws governing independent contractor<\/span> classification<\/span> are constantly evolving at both the federal and state levels, making compliance increasingly complex for businesses and workers alike. Consulting a local business attorney <\/a>can help ensure proper classification, reduce legal risk, and provide tailored guidance as regulations continue to change.<\/p><\/div>\n\n\n

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