Understanding New Rules for Who’s an Employee and Who’s Not: A Simple Guide for 2024
Big news effective this month! Two big offices in the U.S., the Department of Labor (DOL) and the Internal Revenue Service (IRS), made some new rules about whether someone working for a business is considered an employee or someone who works for themselves (like a freelancer). Starting in March, these changes help everyone know better if they should be treated like a part of the company or more like their own boss.
The DOL came up with a new way to decide this by asking six questions (like a mini-test) to see if someone really acts like an employee or not. Here’s what they look at:
- Opportunity for Profit or Loss: Can the person make more money or lose money based on their work decisions?
- Investment Comparison: Does the person spend their own money on tools or things they need to do their job, similar to how a business invests in its stuff?
- Permanency of Relationship: Is the person expected to stick around for a long time, like an employee, or are they just there for a short project?
- Degree of Control: Does the company tell the person exactly what to do, or do they get to make their own decisions about how to work?
- Integration into Main Business: Is the work they do a big part of the business, like making products or serving customers directly?
- Initiative and Specialization: Does the person use their special skills to do their job in a unique way, and do they try to grow or make their work better independently?
At the same time, the IRS is saying that businesses have to be really careful about calling someone a freelancer when maybe they should be called an employee to make sure everyone gets the rights and benefits they should.
For businesses, this means they have to really look at how they work with people and might need to change some things to follow these new rules. If they don’t, they could get into big trouble, like having to pay a lot of money for mistakes.
These new rules are made to make sure everyone is treated fairly at work and knows if they should be called an employee with certain rights or a freelancer who runs their own show. It’s super important for businesses to understand these rules to avoid problems and make sure everyone is happy and treated right.