Employees versus Independent Contractors: WHO ARE YOUR EMPLOYEES?
By: James A. Spella, Schloemer Law Firm, S.C.
Wisconsin employers need to be careful in classifying their workers to make sure they are not misclassifying employees as independent contractors. Wisconsin employers should be aware that on January 10, 2024, the U.S. Department of Labor published a new rule, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act”, effective March 11. 2024.
Wisconsin Employers: Employee or Independent Contractor Classification
Governmental agencies have long coveted converting the classification of an individual as being an independent contractor to an employee.
By being classified as an ’employee’ a myriad of governmental rules and regulations will apply to both the individual and the business with whom the worker has contracted.
The reclassification of an individual from independent contractor to employee is specifically burdensome and costly for small businesses, which are in fact, the individual and the business with whom the worker has contracted.
For example, if classified as an ’employee’, the contracting business will incur higher payroll costs including FICA payments along with the potential of covering the ’employee’ on the contracting business’ employee benefits such as health insurance and retirement benefits.
The reclassified individual loses the ability to be ‘an independent contractor’, the owner of his or her own business.
There has always been tension between the ’employee/independent contractor’ classification. This is not new, and both Wisconsin and federal rules and regulations have provided ‘tests’ to determine the proper classification.
Give the referee a whistle – and he will blow it.
Likewise with government agencies, give them the opportunity to issue a rule, a new rule will be issued.
Accordingly, on January 10, 2024, the U.S. Department of Labor published the issuance of the final rule, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act”, effective March 11. 2024.
As with all things government, the Final Rule is issued in 226 pages. The following link provides a summary prepared by the Department of Labor – Small Entity Compliance Guide:
Each relationship between an individual (or his/her business entity) and the contracting business will have unique facts in applying the new Final Rule and its six factors.
Recommendations for Wisconsin Employers
What should an independent contractor (IC) do? What would a contracting business (CB) want to see to avoid gaining a new employee?
- IC should, in fact, maintain a separate business – office location, web page, marketing, stationery. Consider organizing it as an LLC or Corporation. Do work for more than one contracting business as opposed to being a ‘captive IC’. Exclusivity to one IC may be fatal.
- IC should apply for a separate Federal Business Employer Identification Number (FEIN). This may require a separate income tax return.
- IC and CB should work under written contracts. A purchase order and acknowledgement may be sufficient to be completed by a certain date. It is important that the CB does not direct time and how IC is to complete ICs work. The more the control the CB has over the IC tends to cast the IC as an employee – independence of the IC is critical.
- IC should be responsible for expenses related to the contracted services. IC provides its own equipment, supplies, etc.
- IC provides specialized skills.
- IC should be responsible for completion of services and any liability related for failure to complete. This also suggests that the IC should have its own business insurance.
- IC should be paid per job.
- IC incurs profit or loss for the services rendered.
- IC should avoid providing services critical and necessary, or central to CB’s principal business.
This new rule imposes yet more government requirements on businesses. Wisconsin based businesses should meet annually with a Wisconsin business law attorney to review changes to the law and how it affects their business. The law is constantly evolving, and businesses need a strong business attorney on their side to make sure that they stay in compliance. Failure to do so can have grave consequences for your business, from government fines and penalties to potential litigation exposure. We meet with business clients annually to review government compliance, contract matters, corporate governance, employment concerns, and potential litigation exposure.
We frequently represent individuals and businesses in all of their Wisconsin business law legal matters, focusing primarily on providing business, estate planning, and family law legal services in Wisconsin including Washington County, Ozaukee County, Dodge County, and Fond du Lac County and represent businesses in the communities of West Bend, Jackson, Slinger, Hartford, Kewaskum, Cedarburg, Grafton, Menomonee Falls and other surrounding communities. Our West Bend business attorney are experienced in handling all aspects of corporate law.
Originally published: February 7, 2024.
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Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected].