Running a business these days can feel like a never-ending game of catch-up. No matter how well you plan, it seems that there’s always another policy change, another regulation, another ruling to be aware of and keep up with. The latest in a long line of such developments is the evolving definition of an independent contractor and how this definition affects independent contractor management.
In May 2018, in a decision that has shaken up the entire economy, the Supreme Court ruled in favor of the so-called “ABC test” — a three-part test that the Department of Labor has proposed as a new way to determine whether a worker should be classified as an independent contractor or an employee.
Early this year, the National Labor Relations Board rattled the doors of businesses again by announcing a new ruling on legal tests for employee and independent contractor classification to address issues on mislabeling. The new ruling wants to further protect workers under federal labor and state laws, even urging workers to participate in talks and activities of the union.
Independent Contractor Classification Under the New Tests
The Worker Performs a Specialty Job or Which Otherwise Requires Special Skill, Initiative, Judgment, or Foresight
The worker is considered an independent contractor when that worker:
- Is free from the control and direction of the employer in connection with the performance of the work.
- Is engaged in an independently established business.
- Performs a specialty job that businesses may not expect from the employee workforce.
Independent contractors position themselves as experts in their respective fields, and businesses hire them to perform work in those fields. Such work may include, for example, the design and implementation of a new software program, the completion of a construction project on time, or the rendering of legal opinions.
The independent contractor classification tests are applied to workers who perform any services that an employer hires an independent contractor for. But it is not limited to those services. The tests are aimed at helping businesses know their legal responsibilities to each worker with whom they have contract work arrangements.
The Worker Has the Opportunity for Profit or Loss Based on Their Managerial Skill
Independent contractors typically manage their own business and make decisions for it. That is where the independent contractor classification tests come into play. The new tests are important for both contract workers and businesses to help businesses understand their obligations under the law when contracting with workers.
The tests will also help workers feel more secure with their working conditions by clarifying the employer’s legal obligations and giving workers insight into their rights as workers.
The Worker Invests in the Equipment or Materials Required to Perform the Work or the Employment of Helpers
Independent contractors can make, buy, or rent the equipment or materials they will need to perform the work without the employer’s permission. Independent contractors may also independently decide how to provide their employees to help them perform the work. Independent contractors can hire helpers to help with the work as needed, and they are not required to tell their boss about the helpers unless they want to.
The independent contractor classification tests allow the worker to decide how to perform their job while also setting the terms of their employment relationship at the start. Independent contractors are free to choose how they will perform the job and work with their helpers as they see fit.
Do You Need Help Keeping Up with Ever-Changing Independent Contractor Management Rulings?
Running a business is already a difficult task, to begin with, and the New Independent Contractor Classification Rulings are no different. To navigate the thicket of regulations, businesses need to be constantly up to date with all the latest business policies.
To do that, they need to take advantage of all the resources available. In this case, we at ClearPath can help you. Call us today to schedule a consultation with one of our knowledgeable legal counselors.