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HR Minute for February 2024

Independent Contractor Final Rule Released. You may have heard that the Department of Labor (DOL) has published a final rule regarding the independent contractor classification that will take effect March 11. This rule has somewhat codified definitions and restrictions that were already effectively being used in audit and investigation. 

February 09, 2024

Although it is being challenged in both Congress and the courts, I still recommend small businesses review and prepare for compliance with DOL expectations Note that the sub-directory title “misclassification” is a strong clue to the continued focus for regulatory oversight.

I would also like to stress that this iteration of the rule does not change my standard message on independent contractors or diminish business owner responsibility to appropriately classify workers. As a matter of fact, nothing has changed in either the Texas Workforce Commission guidance or IRS standards. It is also important to remember that each of these agencies has the authority and responsibility to audit, investigate and enforce their own regulations; there is no blanket definition or immunity. Please erase the phrase “1099 employee” from your vocabulary… 

There can be good reasons for a small business to engage independent contractors – unique subject matter experts for limited projects, professionals with specialized tools or equipment only needed on occasion, etc. – but it is essential that these service providers clearly operate as their own small business outside the scope of typical business activities. For example, contractors should submit invoices for payment instead of time-sheets for payroll. When a business owner finds reason to subcontract activities of business, they should, at minimum: 1. establish clear contracts with specific deliverables; 2) require indemnification/liability insurance; 3) stipulate deliverables and set terms for payment/performance/completion. The focus should be on business-to-business relationships rather than subcontracting out the essential services of their business model for operational expedience or perceived short-term savings.