On January 10, 2024, the Department of Labor (DOL) released its Final Rule on Independent Contractors (Final Rule). This rule is intended to provide guidance to businesses who engage independent contractors. However, the rule follows the trend from some states to determine that most workers are, in fact, employees and not independent contractors. 

The Final Rule applies a six-factor test and does not concentrate on any particular factor(s). Instead, the Final Rule focuses on an individual’s activity as a whole to determine whether such an individual is an independent contractor. This “totality-of-the-circumstances” approach involves the following factors: (1) the worker’s opportunity for profit or loss; (2) investments by the parties; (3) the work relationship’s permanency; (4) the nature and degree of control over the work; (5) whether the work is an integral part of the employer’s business; and (6) the worker’s skill and initiative.

The DOL has stated, “[E]conomic dependence is the ultimate inquiry for determining whether a worker is an independent contractor or an employee.” Thus, independent contractors who perform substantially off of their work for one business are more likely to be economically dependent on that business and should be classified as employees.

To add further confusion, the Final Rule standard is different and does not supersede the IRS standard that only takes into account three factors: (1) behavioral control; (2) financial control; and the type of ownership. Additionally, the Final Rule does not supersede Nevada law that has an entirely different structure.

Under Nevada law, NRS 608 et seq., workers in Nevada are treated as independent contractors, rather than employees, if they fall within one of three categories:

• The first category captures workers who have applied for a federal employer tax identification number or Social Security number, or has filed a federal income tax return for a business or earnings for self-employment, in the previous year.
• The second category applies to people working under a contract that requires them to hold a state or local business license and to maintain any necessary occupational license, insurance, or bonding for the term of the contract and meet at least three of following criteria:
• The worker has control and discretion over the means and manner of performance of the work.
• The worker has control over the time the work is performed, unless agreed to in the contract.
• The worker is not required to work solely for one employer, unless required by law or agreed to in a written contract with a limited term.
• The worker is free to hire employees to assist with the work.
• The worker has invested in the worker’s own business.

Although it is not required, having a written independent contractor agreement that properly sets forth criteria under federal and state law can help to ensure that your business does not misclassify an employee as an independent contractor. Misclassification can significantly damage your business with the imposition of criminal penalties; civil penalties and liability for back wages. 

Gordon Law can help you to ensure you have the proper classification and documentation.