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Looming rule change may revamp employee classification

On Behalf of | Sep 27, 2022 | Employment Law

During casual conversation, the subject of employment almost always comes up in some context. Everyone understands the terms used casually regarding work, e.g., boss, co-worker. Regulations presently under review by the Department of Labor (DOL), however, may alter the criteria to determine whether to classify a person as an “employee” or an “independent contractor.” Significant legal and financial consequences can impact all members of the workforce with new factors to evaluate.

Late in January of 2021, the DOL employed a five-factor test that weighed the first two factors more heavily than the other three. A determination made upon these factors—the nature and degree the employer had over the control of the work and the worker’s opportunity for profit and loss—ignores any specialized training provided, the duration of the relationship, and how the worker fits in within the business’ larger scheme. In July, the DOL submitted a proposed rule to the White House.

 Consequences in North Carolina

State law places certain tax liabilities and other obligations on employers in North Carolina. Those who do not comply will have misclassified a worker as an independent contractor. Misclassification of a worker carries costly long-term consequences. Employers may face severe penalties from the North Carolina Industrial Commission. Moreover, employees may have had overtime compensation withheld, unless considered exempt under the Fair Labor Standards Act.

Experience provides options

Every business relies on workers to satisfy its customers and fulfill its mission. Federal regulations and state law clarify the type of relationship beyond the terms of the employment contract. Attorneys who monitor these changes can provide guidance.