The Federal Department of Labor just passed new stricter rules about worker classification. Here’s what that means for construction contractors.
Effective March 11, 2024, the definition of independent contractor will change. The new rule takes what is considered a “totality-of-the-circumstances” approach. It is an assessment that includes various factors – none of which will necessarily stand alone.
Just like you can’t walk into a bank and say you are John D. Rockefeller IV expecting the bank management to hand over a large amount of cash, you can’t claim someone is an independent contractor without verification. In other words, (in the vernacular) “they gots to prove they is who they say they is.”
What Factors Will Be Considered?
The worker’s opportunity for profit or loss. (Is the compensation set for the work based on time and cost, or is it a flat fee given for an outcome?)
The investment and obligations incurred by the worker. (Has the person invested capital in equipment, bought materials, provided technology, or employed others?)
The degree of permanence of the work relationship. (Has the worker been doing this work for years in the same manner regularly as the core work?)
The nature and degree of control over the performance of the work. (Does the worker exercise substantial control over critical aspects of the performance of the work, such as setting his or her schedule? Can the worker work without supervision, or does the worker have the ability to work for others?)
The extent to which the work performed is an integral part of the employer’s business. (Is the work part of an integrated unit of production; does the worker deliver essential goods or services that are regularly incorporated into the company’s ongoing service, manufacturing, or professional product?)
The ability to take on more than one client. (Does the worker have the opportunity to take on additional clients, and what percentage of business is devoted to one company?)
Clearing It Up
The big difference between the 1099 independent contractors and typical W-2 employees is that independent contractors are their own business entities.
Independent Contractors:
Pay their own taxes.
Provide their own benefits.
Submit invoices for work completed.
Further, the criterion is made plainer when the independent contractor can provide information concerning professional licensure, special accreditation, or other supporting credentials.
What it Means for Construction Contractors
The best way to protect yourself and your construction business is to pay attention to the new rules and apply them when making decisions concerning worker classification!
Correctly classifying your workforce is the best way to protect yourself from legal penalties and fines.
By classifying workers correctly, you can avoid:
Tax violation fines.
Federal law violation fines and penalties – including the possibility of jail time.
Benefits insurance repayment.
Class-action lawsuits seeking punitive damages (plus associated attorney fees.)
Harming your construction company’s reputation.
Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:
Clients and customers
Employees and subcontractors
Vendors and service providers
Governmental entities
Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:
Remain informed
Avoid hassles
Reduce risks
Be future-ready
Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735