Utah Compliance Connection - January

Federal Compliance Update

Federal DOL Reinstates Longstanding Independent Contractor Test

Background

Under the FLSA, employees are generally entitled to minimum wage, overtime pay, and other benefits. Independent contractors are not entitled to these protections and benefits and are responsible for their own business expenses such as paying income taxes. According to the DOL, this final rule will reduce the risk of employees being misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.

The U.S. Department of Labor (DOL) has published a final rule for independent contractor classification under the federal Fair Labor Standards Act (FLSA). Beginning on March 11, 2024, the rule will effectively reinstate the longstanding version of the “economic reality” test the DOL previously used. This test uses a multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee who is economically dependent on the employer for work, or an independent contractor (IC) who is in business for themself.

2021 Independent Contractor Rule (Ends March 10, 2024)

The DOL published the 2021 Independent Contractor Rule on Jan. 7, 2021. The2021 rule reasserted the economic realities test (ERT) as the DOL’s preferred method to determine whether a worker should be classified as an employee or independent contractor under the FLSA. In doing so, the 2021 rule focused on two core factors: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit and loss based on initiative and/or investment. These factors carried more weight in determining the status of independent contractors.

Final Rule

The final rule rescinds the 2021 Independent Contractor Rule and returns to the pre-2021 rule precedent. In doing so, the final rule restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the FLSA. The final rule ensures that all ERT (Economic Reality Test) factors are analyzed equally without assigning a predetermined weight to a particular factor or set of factors.

Although this version of the ERT hasn't been used by the DOL for the last few years, many state agencies and courts continued to use it, and the IRS’s test for independent contractor classification is very similar, so most employers likely did not take action to reclassify employees during the test’s brief DOL hiatus. That said, it never hurts to reevaluate your classifications. As a refresher, the economic reality test looks at the following six factors:

• The worker’s opportunity for profit or loss
• The relative investments by the worker and the employer
• The degree of permanence of the work relationship
• The nature and degree of control an employer has over the person’s work
•  Whether the work the person does is essential to the employer’s business
• The worker’s skill and initiative

Arguably, the final rule may result in classifying a greater number of workers as employees, not independent contractors. This classification would be significant, particularly in the gig economy, as it would afford more individuals FLSA rights and protections. The DOL has released guidance to help employers comply with the final rule.

You can learn more about the DOL test and the IRS test in the Independent Contractor Classification Guide and Worksheet, and the state tests on the Independent Contractors pages. The DOL also provides a helpful FAQ. For more information, please see 89 FR 1638.

Keep in mind that some states have more stringent tests (e.g., the ABC test in California), and workers in those states will need to pass the state’s test in order to be properly classified as independent contractors.

Preparing for the DOL’s New Rule

Although the DOL’s final rule does not impose any new requirements on employers until it becomes effective, employers should become familiar with the final rule and evaluate what changes they may need to adopt if the rule becomes effective. Employers can prepare for the DOL’s new independent contractor rule by ensuring that they comply with all employee classification requirements under the FLSA. This is especially important for organizations that rely on independent contractors. While the final rule imposes a different standard than the 2021 rule, most employers are likely already familiar with the new rule, as it mirrors an earlier standard that existed before the 2021 rule.

Employers can better ensure compliance with the DOL’s final rule by taking the following actions:

• Audit existing working relationships with gig workers, freelancers, independent contractors, and employees.
•  Determine whether any workers’ classification must be changed in light of the final rule.
• Review any agreements with gig workers, freelancers, independent contractors, and employees to ensure they comply with the final rule.
• Update employment policies and procedures to align with the DOL’s final rule.
• Train managers on the FLSA’s worker classification requirements.

While the DOL’s final rule only applies to the FLSA, many states have their own rules for determining worker classification. To avoid potential violations and penalties, employers need to be familiar with all laws that apply to their organizations. Employers are encouraged to seek legal counsel to discuss specific issues and concerns related to employee classification requirements.

Annual OSHA Form 300A Posting Begins February 1, Expanded Electronic Reporting Due March 2 Form 300A Workplace Posting Begins February 1

Covered employers that had 11 or more employees at any point in 2023 are required to post Occupational Safety and Health Administration (OSHA) Form 300A, Summary of Work-Related Injury and Illnesses, from February 1 through April 30 unless they qualify as an exempt low-risk industry. Employers are required to post Form 300A even if they didn’t have any recordable incidents in 2023. OSHA Form 300A must be certified by a company executive and posted in a conspicuous location where notices to employees are customarily posted.

Employee count is based on the number of employees in the entire company, not per establishment. A full list of exempt low- risk industries, ordered by North American Industry Classification System (NAICS) codes, can be found here.

Form 300A Electronic Submission Required by March 2

Covered establishments that had 250 or more employees in the prior calendar year, or 20–249 employees if they’re in certain high-risk industries, must submit their 2023 Form 300A data electronically, using OSHA’s online Injury Tracking

Application (ITA). The deadline to submit the report is March 2, 2024. These requirements are based on the size of the establishment (how many employees there are at the physical location), not how many employees are in the entire company. Employers that are covered by a State Plan that has not yet adopted its own state rule must also use the ITA to send data electronically.

Employers that meet any of the following criteria DO NOT have to send Form 300A information to OSHA:

• Employers that are exempt from OSHA’s routine recordkeeping requirements, as mentioned above.
• Employers that never had 20 or more employees during the previous calendar year, regardless of industry.
• Employers that had between 20 and 249 employees at some point during the previous calendar year but are NOT on this list of high-risk industries.

Additional information, FAQs, and the Injury Tracking Application can be found on OSHA’s ITA page.

New Requirements: Form 300 and Form 301 Electronic Submission Required by March 2

Covered establishments in designated high-hazard industries that had 100 or more employees in the prior calendar year will need to electronically submit information from their Form 300, Log of Work-Related Injuries and Illnesses, and Form 301, Injury and Illness Incident Report, through OSHA’s Injury Tracking Application (ITA). This is in addition to submitting information from their Form 300A, Summary of Work-Related Injuries and Illnesses.

Establishments covered by federal OSHA can use the ITA Coverage Application to determine if they’re required to electronically submit their injury and illness information to OSHA. Establishments covered by an OSHA-approved State Plan should contact their State Plan directly to determine reporting requirements.

Federal: ACA Affordability Threshold Decreases for 2024 Plan Year

On August 23, 2023, the IRS announced that the Affordable Care Act (ACA) affordability threshold will be 8.39%, reduced from 9.12% in 2023, for plan years beginning in calendar year 2024 (after December 31, 2023). Under the ACA’s Employer Shared Responsibility provision (play or pay), large employers (those with an average of 50 full-time employees—including full-time equivalent employees—during the prior year) must either:

• Offer most full-time employees and their children minimum essential, minimum value coverage that is affordable at the employee-only level of coverage; or
• Make an employer shared responsibility payment to the IRS if at least one of their full-time employees purchases coverage on a Health Insurance Marketplace and receives a premium tax credit because their employer did not offer qualifying coverage.

Under the new threshold, to be affordable for the 2024 plan year, the employee’s required contribution to the plan cannot be more than 8.39% of their income.

Read more about affordability and minimum value on the IRS’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act page.

IRS Revenue Procedure 2023-29 will be published in Internal Revenue Bulletin 2023-37 on September 11, 2023.

IRS Mileage Reimbursement Rate

The IRS standard mileage rate will be 67 cents per mile driven for business purposes (up from 65.5 cents in 2023). This rate also applies to electric and hybrid vehicles.

Use of this rate is optional, though it’s widely accepted as an easy and standard reimbursement rate for employees who use their personal vehicle for work. If your organization uses the IRS rate to calculate mileage reimbursement, be sure to update your systems to account for this change.

State Compliance Update 

Nothing to report so far!

Compliance Calendar 

February

2/1 – Post OSHA Form 300A (Summary of Work-related Injuries and Illnesses)

2/15 – Request a new W4 form Employees Claiming an Exemption from Withholdings for 2023

2/28 – File ACA Forms 1094-C and 1095-C (Paper Filing Deadline) – most employers are required to file electronically 2/28 – File ACA Forms 1094-B and 1095-B (Paper Filing Deadline) – most employers are required to file electronically 2/29 – Submit the Medicare Part D Disclosure to CMS (Calendar-year Plans Only)

March

3/1 – Provide ACA Form 1095-C to Employees 3/1 – Provide ACA Form 1095-B to Employees 3/2 – Submit Electronic Reports to OSHA

3/31 – Deadline for Filing the EEO-1 Report With the EEOC

April

4/1 – Forms 1094-B, 1095-B, 1094-C, and 1095-C Filing Deadline for Electronic Filers

4/30 – Form 941 Filing Deadline (first quarter)

4/30 – Remove OSHA Form 300A