January 29

The Economic Realities Test


Will this new rule affect your business?

Last week, the Biden Administration issued new rules with the intent to crack down on the misclassification of independent contractors. While this is a headline grabbing event, it may just be political posturing.

Most states already have rules in place to combat misclassification. In New York, we have the Freelance isn’t Free Act, The Transportation Fair Play Act, and the Construction Fair Play Act. In California, the rules are so restrictive that ride share companies had to depend on a referendum to order to save their business models. (And it worked as the general public loves ride share).

So why does the federal government make rules that are difficult to enforce? In my opinion, I think they recognize that there are many “bad actors” who are exploiting workers. I have personally represented companies that I know cannot pass any “IC” test. This was many years ago and those companies no longer exist. However, what I have seen lately is new clients who are attempting to follow the rules but simply cannot due to the profit margins and/or the competition being able to operate is a cheaper manner.

It is worth noting that 2024 is an election year and one of the hot topics are workers’ rights and the ability to unionize. So, this new rule is a great campaign pitch for those who depend on the union vote.

What is the economic reality test?

  • Control: Does the employer have significant control over the worker’s work schedule, tasks, and methods?
  • Investment: Who provides the tools and equipment necessary for the work?
  • Opportunity for profit or loss: Does the worker have the ability to control their own income and expenses?
  • Permanency of the relationship: Is the worker part of an ongoing business operation, or are they just hired for a specific project?
  • Skill and initiative: Does the work require specialized skills or does the worker have significant autonomy in how they perform their tasks?

Essentially, if the worker is economically dependent on just one company, they will be considered employees. Contemporaneously, the Feds may look at whether or not the company is dependent on the workers in order to operate or if the company and the contractor are in the “same type of business.”

So how do you mitigate your exposure? First, you need a solid contract. Secondly, you need to adhere to a “Best Practices” that is truly followed. And lastly, you need the support and knowledge from people that have the experience and expertise to help guide your company through the bureaucratic gauntlet.

The biggest question is: Does your business model meet the criteria of the government and the states that your company operates in?

For more information and guidance, go to www.consultechclaims.com or call 518-689-2470 x140

Are your contractors in need of insurance?

Do you need help processing settlement payments?

Do you want an extra layer of protection against the state and federal government?

Do you need a compliance review?

Are you looking to sell your company or acquire another?

Call us (518-689-2470 x140) and we will be your One Stop Shop for all things Independent Contractor!


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