Whenever a business gets ready to engage help, the inevitable question that comes up is whether they should hire a W2 employee or a 1099 independent contractor. There are distinct beneﬁts to classifying an individual as an independent contractor as opposed to an employee. Such beneﬁts include not having to pay certain taxes (payroll taxes) or provide certain beneﬁts (workers compensation insurance, unemployment insurance, or protections afforded by labor laws).
But simply classifying an individual as an independent contractor – without considering the guidelines set by the law – is a mistake businesses should avoid. Courts have developed the “economic reality test”, which essentially provides a list of factors that can be used to determine the appropriate classiﬁcation. Under this test, a company’s right to control the manner in which work is done and the worker’s opportunity for proﬁt or loss depending are the predominant factors that are given weight.
The Biden administration has proposed changes to the existing economic reality test and instead proposed a “totality of the circumstances” analysis, which will focus on whether workers are “economically dependent upon an employer for work”…Under this standard, gig workers (Uber, Lyft, Doordash, etc) would have to be reclassiﬁed as W-2 employees and the change in standard could also impact others such as newspaper columnists, truck drivers, real estate agents, barbers, and other consultants.
If you are an employer that needs help ensuring that workers are classiﬁed properly, the attorneys at Outside Legal Counsel LLP.
This is not legal advice and is attorney advertising.
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