On January 6, DOL announced a final rule clarifying the standard for employee versus independent contractor under the Fair Labor Standards Act (FLSA) which will go into effect on March 8, 2021. These new regulations redefine the tests to determine who is an independent contractor and streamline & clarify the tests to determine who is an employee versus an independent contractor. The overall objective of the new regulations is to simplify compliance when determining Independent Contractor Status.
The following issues were addressed in the new rule.
- The “economic reality test – used to determine if an individual is an independent contractor who is in business for themselves or, is “economically dependent on the employer” for work (FLSA definition of an employee). If you sponsor an MLO, they are economically dependent on your company.
- The two “main” factor test – (1) Nature and degree of control over work and (2) Worker profit or loss, based on initiative and/or investment.
- The amount of skill required to do the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is “part of an integrated unit of production”. A sponsored MLO is integrated.
- The Biden Administration’s effect on enforcement as a tool to insure collection of payroll taxes.
When you sort through all the tests and commentary our conclusion is still the same. No matter what a state may say about this, a mortgage loan originator sponsored by your company, is an employee. A mortgage loan originator who is sponsored by his own company but does some business with other licensees, is an independent contractor.
If you need some help with converting to W-2, that is part of our overall compliance program. Just give us a call at (800) 656-4584 and we will not only get you in safe harbor compliance wise, we will be there for you all the time as things like this pop up. That way, you keep originating, we keep an eye on your state of compliance.
Nelson A. Locke, Esq
Compliance Services, USA