Dept. of Labor Rolls Back Independent Contractor Test Rules

The new rules undo the Trump-era independent contractor test, and focus on economic independence as the “ultimate inquiry.”

The US Department of Labor (DOL) recently adopted new regulations that again change the independent contractor test under the Fair Labor Standards Act. 

The new regulations essentially undo Trump administration regulations enacted in 2021.

Upgrade to a Church Law & Tax Advantage Membership which includes a complimentary copy of the Church & Clergy Tax Guide every year, along with unfettered access to our unmatched content, exclusive cohorts, and Store discounts!

New rule stresses economic independence

The DOL test is effective March 11, 2024. 

In many respects, it reverts the test to its pre-2021 status. 

The 2024 rule stresses that economic dependence is the “ultimate inquiry.” 

This means that a worker is an independent contractor if the worker “is, as a matter of economic reality, in business for themself.” 

This determination is made by looking at the totality of the circumstances to determine whether the worker is economically dependent on the company, and no one factor is controlling. 

The factors include:

  1. the degree of the hiring entity’s right to control how the work is to be performed;
  2. the worker’s opportunity for profit or loss depending upon their managerial skill;
  3. the worker’s investment in equipment or materials required for their task or their employment of others to assist with the work;
  4. whether the service rendered requires a special skill;
  5. the degree of permanence of the working relationship; and
  6. the extent to which the service is rendered is an integral part of the hiring entity’s business.

Most employers do not realize that federal and state employment laws offer differing definitions for separating employees from independent contractors

And the IRS still has a different test. 

ABC test

The practical problem is that most employers will classify workers as independent contractors without considering the differing tests. 

If the worker is an independent contractor for tax purposes, it will issue a Form 1099-NEC and ignore the other tests. 

Fun Fact: The Internal Revenue Code contains 16 different definitions of employee for differing purposes. 

Since the DOL and IRS tests are challenging to apply, most states have adopted the ABC test. 

The ABC test is designed to make most workers employees. 

This test looks at (A) the degree of control the company exerts over the details of the work being performed, (B) whether the service performed is integral to the company’s business, and (C) whether the worker regularly performs a similar service for other companies.   

Churches and ministries will be best served using the ABC test. 

Is a worker considered an employee under the ABC test? If so, it’s likely they’ll be classified that way under all employment and tax laws.

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay