The growth of the gig economy and the flexible workforce revolution of the past several years have transformed the way businesses operate, offering unparalleled flexibility and access to a diverse pool of talent. As companies increasingly turn to freelancers for their specialized skills and the flexibility to hire them when and where they are needed the most, the importance of proper classification and compliance cannot be overstated.
This week, the U.S. Department of Labor has handed down a new rule that will change how companies classify their independent workers this year. According to the new requirements, which go into effect on March 11th, 2024, workers will now be considered employees when they are “economically dependent” on a company or “their work is an integral part of the employer’s business”. The Labor Department has said the rule was designed to crack down on industries and companies where misclassification of workers is common.
Why does freelancer classification matter for your business?
If you’ve started working with more freelancers this year, or plan to start hiring freelancers, proper classification as either 1099 independent contractors or W2 employees is essential for mitigating legal risks, especially with this new law in place. Businesses now have to take a closer look at their freelancer classification company-wide. Misclassifying workers can lead to severe penalties, audits, and legal complications. By ensuring compliance with labor laws and regulations, businesses can avoid costly legal battles and reputational damage.
Freelancer misclassification can also have significant financial implications. Businesses may be held responsible for unpaid taxes, overtime, and benefits if freelancers are incorrectly classified. On top of the very expensive government penalties, your company could also face lawsuits from the freelancers themselves. Maintaining compliance helps businesses prevent unexpected financial burdens.
Prepare for changing regulations
As this new rule shows, labor laws and regulations are subject to change, and businesses need to stay ahead of the curve. By prioritizing compliance, businesses can adapt to evolving legal landscapes and minimize the impact of regulatory changes on their operations. This adaptability is crucial for the sustained success of businesses as they engage freelancers.
This compliance is what the AllWork team does every day. We help start-ups and established companies of all sizes navigate the complex and ever-changing world of regulations for a flexible workforce. We’re here to ensure that businesses are always in compliance with all state, federal, and even individual city laws when it comes to classifying their freelancers.
Ready to learn more about how AllWork can help you classify, onboard, manage, and pay your freelancers? Email firstname.lastname@example.org or schedule a demo here to get started!