Independent contractor rules are becoming hazier by the minute. If you’re an independent contractor or an employer who works with them, you may be experiencing some whiplash regarding classification rules. The Trump administration rehauled the independent contractor rules, and the Biden administration rescinded that rehaul while it regrouped on what to do next. Then, in March 2022, a federal judge in Texas overturned the Biden administration’s nixing of the Trump-era rules, citing a violation of federal administrative procedures.
Still with us?
Don’t expect the controversy surrounding independent contractor rules to be cleared up anytime soon at the federal level. It’s been an ongoing challenge for every modern Presidential administration. If you’re concerned that you’re misclassified as an independent contractor when you should be classified as an employee, note your state’s workforce commission definition. As of May 2022, the Texas Workforce Commission points to the economic reality test used by the U.S. Department of Labor and the Social Security Administration. The IRS has its own similar set of rules. And then, there are state-level rules in many states. The Biden administration has had its eye on a stringent “ABC” test for the federal government, similar to California, Illinois, and Massachusetts.
So how can you determine if you’re an independent contractor versus an employee? There are two major underlying themes common to each test. We paraphrase these themes in our own words below for clarity (so, please note that this is not legally binding language):
- Do you control and direct your work? Independent contractors agree to do the job but shouldn’t be controlled over how or where the work gets done.
- Is your opportunity for profit or loss independent from that one relationship? In other words, have you invested in equipment and other expenses yourself, and do you have other customers to fall back on if the work goes away?
If you’re being treated as an independent contractor, but you believe you may be a misclassified employee, how does that affect you? There are many great reasons people choose to be independent contractors. You can be your own boss, set your own hours, and your earning potential can be directly tied to the effort you put into your work. The downside is that you’re also on the hook to pay the taxes and your business expenses, secure your own benefits like health insurance and retirement, and forego employee protections like overtime pay, paid time off, and family leave.
At The HT Group, we regularly help employers hire contract labor as a staffing and recruiting firm. However, we do so in a compliant manner, treating and compensating individuals as employees, even if they’re considered temporary staff.
“Although [these] jobs have certain ‘gig’ attributes (i.e., flexibility and short tenure), the great majority of temporary and contract workers employed by staffing agencies are classified as W-2 employees and therefore are protected by labor, employment, and benefits laws,” The American Staffing Association states.
Are these independent contractor rules making your head spin? Working with a reputable staffing and recruiting firm can be a great way to balance flexibility and control with the benefits of being an employee.