From https://www.dol.gov/agencies/whd/flsa/misclassification/rule... :

7. What analysis guides whether a worker is an employee or independent contractor under this final rule?

This final rule continues to affirm that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. Consistent with judicial precedent and the Department’s interpretive guidance prior to 2021, the final rule applies the following six factors to analyze employee or independent contractor status under the FLSA:

(1) opportunity for profit or loss depending on managerial skill;

(2) investments by the worker and the potential employer;

(3) degree of permanence of the work relationship;

(4) nature and degree of control;

(5) extent to which the work performed is an integral part of the potential employer’s business; and

(6) skill and initiative.

The final rule provides detailed guidance regarding the application of each of these six factors. No factor or set of factors among this list of six has a predetermined weight, and additional factors may be relevant if such factors in some way indicate whether the worker is in business for themself (i.e., an independent contractor), as opposed to being economically dependent on the employer for work (i.e., an employee under the FLSA).

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Having read this, I would not be worried? It sounds like they care about you being able to do your job as intended?

Looks like it just makes it hard to call yourself a "self-employed independent contractor" if you only have one customer and work for them for a very long time. (As opposed to a contractor who might temp for 6-18 months at a time.)

IE, if you are essentially a permanent employee in day-to-day behavior but self-employed on paper.

BTW, once I was in a contract-to-hire situation where the hire part kept getting put off and off. I had to politely remind my "client" that they could get in trouble if they put me into the normal performance review system.

This does make me wish there would be guidelines about how long "contract-to-hire" and "temp" situations should last. A clearly objective line makes things very easy to discuss and anticipate.

The California AB5 law was really detrimental to a lot of industries like journalism with weird rules about how many times an individual contractor could publish to the same publication. A lot of that industry's work moved out of contracting with people in California basically overnight just to avoid the hassle of it. People were leaving the state or having to change careers because it really fucked with their ability to earn money.

Also: https://www.reuters.com/legal/government/us-supreme-court-wo...

The government prefers W2 workers because their taxes are automatically withheld by their employer, creating a predictable revenue stream for the IRS and decreasing the risk of tax avoidance (including accidental avoidance, like when a worker fails to save money for taxes).

Beyond simple monetary risks, a citizenry of 1099 workers poses a threat to government power, because the citizens can collectively choose to withhold their taxes. When taxes become a tool for collective bargaining, government revenue can fluctuate at the whim of social movements.

Imagine a population of 1099 workers where half of the electorate refuses to pay taxes in order to protest the policies of the government in power.

>The government prefers W2 workers because their taxes are automatically withheld by their employer,

There is no guarantee that the tax withheld will actually be enough to cover the actual tax liability, so that is an unsupported claim.

>accidental avoidance, like when a worker fails to save money for taxes

Nothing "accidental" about it, at least not after the first year. Then it is cheating where the taxpayer hopes to take advantage of generous forgiveness or delay programs built into the system (such as Offer in Compromise) hoping to eventually run out the statute of limitations clock.

>a citizenry of 1099 workers poses a threat to government power, because the citizens can collectively choose to withhold their taxes.

Again, a completely unsupported claim. First, millions already do evade taxes and it has not yet reduced government power. The government can print and/or borrow money longer than the tax cheats can withstand it. The government can file liens against property and levy other payments to get the money from most places where the tax cheats try to hide it. The government can also require those who pay independent contractors to withhold on those payments (similar to employers), in addition of course to the mandatory reporting of such payments.

Also, those who prefer being employees (because that is almost always a better deal for the worker - for example, unemployment insurance, minimum wage, paid sick leave) would probably object to their fellow citizens, working as ICs, cheating on a massive scale.

W2 provides some niceties for the IRS, but the government could easily require income withholding on 1099's.

> Imagine a population of 1099 workers where half of the electorate refuses to pay taxes in order to protest the policies of the government in power.

Half of the citizens being pissed off enough to not pay taxes is an issue for the government, but I don't think the money itself is an issue for the government.

They can seize any money you put into a digital payment network, probably including Bitcoin if they can blacklist your address/coins. They can stop printing and deprecate cash, so you have to use a digital payment network.

Hell, they can just print more if they have to. You're threatening to withhold tickets from a Chuck E Cheeze.

You would need to set up a parallel economy that didn't function on USD or federally-regulated banks. You certainly could if 50% of the population wanted to participate.

>creating a predictable revenue stream for the IRS

This is the biggie. The IRS absolutely HATES the idea of uncertainty. It's why last year when I started doing my taxes and initially had a refund in excess of $1000, my tax software popped up a warning saying that there's a heightened chance I'd be audited.

>> The IRS absolutely HATES the idea of uncertainty. It's why last year when I started doing my taxes and initially had a refund in excess of $1000, my tax software popped up a warning saying that there's a heightened chance I'd be audited.

Is it? Did your tax software's warning say "Your tax refund is in excess of $1,000.00 and the IRS hates uncertainty so you've got a heightened chance of being audited"? If not, what leads you to believe that one thing has anything to do with the other? Why is the IRS's purported aversion to uncertainty (assuming that this aversion even exists) the most likely cause in your mind rather than something else?

It seems like you probably had some other things going on in your taxes: "According to filing season statistics reported by the IRS, the average tax refund in the 2023 tax season—for tax year 2022—was $2,753. The average direct deposit tax refund was slightly higher than the overall average, at $2,827."

https://time.com/personal-finance/article/average-tax-refund

Your tax software is scaring you into a protection racket because apparently even their cognitively included customers misattribute it to the dastardly IRS instead of the tax software corporation charging a protection racket

Make enough money and you’ll realize the IRS helps you not pay them

> Imagine a population of 1099 workers where half of the electorate refuses to pay taxes in order to protest the policies of the government in power.

Is that a missing verse from the John Lennon song, because I like it.

The law prioritises people who sign up for something they don't want (e.g. as a contractor, but wants to be perm), over people who sign up for something they do want (i.e. as a contractor, who wants to be a contractor).

This happened with Uber in the UK as well[0] - people signed up to be Uber drivers as self-employed people, but then decided they wanted to be employees.

I understand the emotional want to break your agreement if you can get more money, but I don't understand the legal case for wanting a legal designation (self employed) to be so hard to define. How do you know where you stand, as an individual or a business, if this stuff can just be changed?

[0] https://www.bbc.co.uk/news/business-56123668

> The law prioritises people who sign up for something they don't want (e.g. as a contractor, but wants to be perm), over people who sign up for something they do want (i.e. as a contractor, who wants to be a contractor).

I don't think that's a fair statement of the situation. The law is attempting to punish companies who intentionally mislabel the tax status of their employees. (for example, Uber claiming their drivers are "self-employed", when they're effectively just doing modern Piecework).

Not arguing that the law is perfect, but the goal here is noble, and the idea is sound. Without new laws like this, nothing stops all employers from lying to the IRS about all employees and just making every employee anywhere a "self-employed contractor".

> How do you know where you stand, as an individual or a business, if this stuff can just be changed?

You read the rules? Nothing major has been changed, they're just closing previously exploited loopholes. This only really applies to you if you are an employee at a company that's trying to evade paying their taxes by labeling you a contractor.

It doesn't prevent contractors from contracting (unless they're in some kind of weird edge case).

> for example, Uber claiming their drivers are "self-employed", when they're effectively just doing modern Piecework

Self-employed is the legal status they have with Uber. Like I could be an IT contractor. I'd be self employed, and I might have several customers at a time. How is that mislabelling? I could do Uber and Lyft at the same time and Uber's HR department wouldn't come after me for working for Lyft, because I'm a free agent. Because I'm self-employed.

> but the goal here is noble, and the idea is sound

This is as ever the problem. Achieving noble goals (not that I think this goal is noble, to my understanding of it), even in a perfect world where the implementation might not be terrible, still has tradeoffs. Pretending the tradeoffs don't exist is silly - the nobility will wear off and the reality of the law will set in soon, and last for a long time.

> nothing stops all employers from lying to the IRS about all employees and just making every employee anywhere a "self-employed contractor"

People who sign a contract to be a permanent employee are not going to be classified to the IRS as self-employed. That is already a law.

As far as I understand it, this law is about people voluntarily signing up as self-employed, with the associated pros and cons of that arrangement, and then deciding they want the legal system to force their employer to change the arrangement they previously agreed to. Now do Uber drivers have to be employees, regardless of what they want?

> This only really applies to you if you are an employee at a company that's trying to evade paying their taxes by labeling you a contractor.

Well, I disagree that it's a mislabelling. It goes deeper than taxes; it's the fundamental relationship between drivers and Uber. Should YouTubers all be classed as employees of YouTube, even though they agreed to the current arrangement, and can earn money on other platforms with no repurcussions?

I do agree that the ruling might've been motivated by wanting to collect more taxes, but I can't say for sure. It seems much more framed as "I signed up as a self-employed person, with the associated pros and cons, but I want benefits now with no compensating adjustment."

This sounds similar to how IR35 operates in the UK. It’s a total pain and has made contracting far less attractive for both parties.

I had to explain the purpose of an umbrella company to a client in the US recently. Perhaps that structure will become the standard way for contractors to work over there too.

That structure already exists in some places in the US, often mainly to pool HR expenses and healthcare. I suspect it will grow significantly.

The biggest risk for this is people who "really are" independent but are currently working on a long-term contract for a company, and it sounds like we'll have to wait for case-law to apply.

I suspect the rule of thumb of "you make $50/hr or more effective" will probably continue to hold.

A big part of the problem with how the similar rule is implemented in the UK is that determining status falls to the company hiring the contractor.

The employer is legally liable for lost tax revenue if they fail to determine status correctly.

The result: most employers decided that contractors were inside (treated like an employee for tax purposes with none of the benefits of employment) rather than risk getting it wrong.

The rule does not implement the ABC test from California. Indeed, the DOL has gone on at length about why it believes it cannot do that.

Unlike the Cal Supreme Court decision in Dynamex and the subsequent AB5 legislation, which _presumes_ a worker is an employee unless their work passes each prong of the ABC test, DOL still has the burden of proof under this rule.

Your biggest risk was actually the PRO Act, and it will never pass.

And if you have multiple clients who have limited control over how you do your work, you're a bona fide independent supplier anyway.

>>This worries me. I am a one-man shop, and I do not want to be classified as an employee.

You are one out of almost 24 million nonemployer businesses[1] that will be affected by this proposed rule, or around 15% of the entire US labour force[2]. Will be interesting to see what type of response elected representatives will receive once the effects of the rule start being felt.

[1] https://www.jpmorganchase.com/institute/research/small-busin...

[2] https://www.bls.gov/news.release/empsit.t01.htm

What are the potential impacts on self-employed people, for someone who is almost completely out of the loop?

I think the most worrying one is that clients of independent contractors (which I know is an incredibly broad term and conditions, leverage and respect vary across and within industries) may be less willing to hire ICs if they're might be forced to treat them as full-time equivalent employees (benefits).

If true, then this could lead to reduced business for ICs, which in turn requires more time spent on business development and less time on billable engagements to maintain similar revenue levels going forward.

On the other hand, if you're, say, a trucker that would for all intents and purposes normally be considered an employee of a company because so much of their livelihood, hours and method of work depends on a single employer, then their situation (and total compensation) would likely improve.

Expense and paperwork. In my experience, you'll be barraged with paperwork that doesn't really apply, but failing to process it results in penalties.

Instead of hiring American independent contractors, more remote independent contractors will be hired.

Work from home taught companies that many jobs can be outsourced.

But not offshore software developers, unless companies are willing to amortize those salaries over 15 years, or Section 174 is modified.

Does the 15-year amortization period really apply if working with a remote contractor via a U.S.-based employer of record (such as remote.com)?

The "research" is being performed remotely, but you're just paying for the service of a U.S. company.

It would be similar to paying a U.S.-based consulting shop, who may or may not use off-shore labor; I'm actually not sure if the service you're paying for falls under section 174 in either situation, but I'd be surprised if businesses are required to look into the R&D supply chains of their service providers

>>I'd be surprised if businesses are required to look into the R&D supply chains of their service providers

Agreed, this seems overly onerous, but now you're having to pay an(other) intermediary margin instead of hiring the remote contractor yourself, and possibly even at slightly higher rates because now the U.S.-based consulting shop has to deal with the 15 year amortization of their use of off-shore labour.

I worked through Remote.com for quite a while, including after this rule came into effect.

I'd be amazed if that's how it worked for them in practice. I can't see how it could be a viable business for them if they had to amortize the cost over 15 years.

Their margin would be a tiny fraction of the revenue deemed taxable meaning every employee would put them in a worse cashflow situation. It's not like they could borrow to cover the 15yr span either.

Well remote.com specifically isn't paying for R&D. They're basically outsourced human resources, and the expense is born by their offshore/nearshore entity anyway (meaning, it's outside of the U.S.)

Not sure how they handle taxation as I'm sure they wouldn't want to pay tax on the full amount they bill their clients (the businesses who use them).

I'd guess the U.S. entity treats it as doing business with their foreign entity.

Customer A pays "U.S. remote.com" $X per month for employee B.

"U.S. remote.com" pays the "foreign remote.com" entity 0.95*$X per month (I imagine this counts as a regular business expense rather than R&D since their foreign entity is also "just providing HR services", and the U.S. entity is not directly commissioning or even benefiting from any R&D that might be happening)

"Foreign remote.com" pays the employee 0.9*$X per month

In that case, section 174 might make it unprofitable for remote.com to hire Americans.. which I suspect is fairly uncommon anyway.

And even then I'm not sure they'd be bound by section 174, since they're still not paying for for R&D really, they're paying the "employee" to basically maintain positive relations with their client, whether that involves R&D or sitting on meetings and cracking jokes.

these precedents have been in place for years, this is just covering "gig workers" with the same protections contractors have had for a very long time.

For everyone else, this person is just spreading FUD. I think it was in the early aughts when these tests first started to go into effect because companies would have 95%+ of their workforce be contractors as a means to avoid taxes but would treat them like employees (setting their hours, etc).

It turns out the government doesn't like it when you try to avoid paying taxes, so these tests went into effect.

This is just an extension of that to cover gig workers and the largest point of contention is going to be whether or not these gig workers can _regularly_ turn down work without being "fired".

tech companies here are trapped between a rock and a hard place. Either they're working with contractors who can turn down work without negative repercussions and risk not serving customers or they admit these workers don't actually have a choice because they need to serve customers in a timely fashion.

OP here.

I get where you're coming from, but I think you're too harsh on me.

I don't know what the impact will be on my business, and I specifically said that it is a worry, not a certainty.

I am not trying to spread FUD.

I wish some of those who parrot the myth that "the government (U.S) already has everything they need to prepare my tax return for me" would take note of this. This is just one illustration of how in fact they don't have everything, since if you are self-employed they don't know what your net profit is until you tell them (under penalty for perjury).

> if you are self-employed

This is barely 10% of the workforce. It kind of sounds like you're saying that the government does have everything it needs to prepare tax returns for approximately the other 90%.

No, I said "This is just one illustration of how in fact they don't have everything", not the only illustration.

That's ok. What percentage of the population do all of them combined apply to? Is it still the minority?

(The answer is yes, it is still the minority. Barely 13% of people itemize deductions and financial transactions like home mortgages and stock purchases are reported.)

The standard work around is to have someone go from a sole proprietorship to some sort of corporation like an LLP or LLC and do a business to business contract.

Same boat. Wonder if we can reclassify in any more beneficial way. Perhaps they should create something.

Could ICs just sidestep this with an LLC or S-corp where they're the sole employee?

OP here.

I have an LLC. I suspect that having one may weigh into the factors, but as the FAQ says, nothing is automatic.

some large contracting firms will do corp-to-corp, but most of the clients still want a firewall between them and your alleged IC classification.