What does Preamble of 21st Century Worker Act do?

This bill aims to clarify the classification of service provider payees as employees or independent contractors in Federal law.

What does SHORT TITLE. of 21st Century Worker Act do?

This bill is formally titled the 21st Century Worker Act.

What does DEFINITIONS. of 21st Century Worker Act do?

This section defines various terms used throughout the title. A 'bona fide sole proprietor' is a service provider who has a written contract, isn't required to work exclusively for one recipient, and lacks a substantial economic relationship with the recipient. A 'business entity' includes corporations, LLCs, and partnerships, among others. ’Compensation’ includes payments in money, property, wages, salaries, benefits, and other forms of payment. A 'direct sales service provider payee' is defined by reference to section 3508(b) of the Internal Revenue Code of 1986. An 'employee' is a service provider payee classified as a mandatory employee or classified as an employee. ’Employment by agreement’ means an agreement demonstrating a mutual intent to form an employer-employee relationship. A 'formal bona fide contractor' must be recognized under state law or meet specific criteria related to contracts, expenses, and economic relationships. A 'substantial economic relationship' exists when a natural person receives over 75% of their compensation based on time worked, the recipient determines hours, and the provider works substantially full-time for a period of 4 consecutive weeks or more.

What does CLASSIFICATION. of 21st Century Worker Act do?

This section establishes a classification system for service provider payees, categorizing them as either employees or independent contractors. Service provider payees meeting the requirements of section 103 are classified as independent contractors, while those meeting section 104 are classified as employees. Service provider payees that meet neither section 103 nor 104 can elect their classification according to section 105. Generally, the service recipient payor is responsible for determining the proper classification of a service provider payee. However, the service provider payee is responsible for determining their classification as an independent contractor if it's based on specific criteria outlined in section 103, such as licensed professions or business entities. The initial classification determination must be made immediately upon entering into an economic relationship. Reclassifications or periodic reviews of the classification determination are required according to section 106.

What does MANDATORY INDEPENDENT CONTRACTOR CLASSIFICATION. of 21st Century Worker Act do?

This section establishes criteria for classifying a service provider payee as an independent contractor. A payee must not be classified as an employee under section 104 to be considered an independent contractor. To qualify, a payee must meet at least one of several requirements, including being engaged in a licensed profession and holding themselves out to the public. Other qualifying requirements include being a business entity, having a limited economic relationship, being a direct sales service provider, or being a bona fide sole proprietor or formal bona fide contractor.

What does MANDATORY EMPLOYEE CLASSIFICATION. of 21st Century Worker Act do?

This section establishes criteria for classifying service provider payees as employees. A service provider payee may be classified as an employee if they meet one or more requirements. One requirement is the existence of a 'substantial economic relationship' between the service recipient payor and the service provider payee. Another requirement is 'employment by agreement'.

What does ELECTIVE CLASSIFICATION SERVICE PROVIDER PAYEES. of 21st Century Worker Act do?

This section establishes rules for 'elective classification service provider payees,' those not meeting requirements in sections 103 or 104. These payees must elect to be classified as either an employee or an independent contractor. The election must be made in writing, dated, signed by the payee, and countersigned by the service recipient payor. The election is not effective until the service recipient payor countersigns, acknowledging their awareness of the classification. The election must be made within 14 days of entering into an economic relationship; failure results in a penalty. Both the payee and the payor must retain a copy of the countersigned election for 3 years. If the payor fails to countersign within 14 days after the payee's request, the payee is classified as an independent contractor. Penalties are imposed for failing to make the election, failing to keep records, or willfully/recklessly misclassifying a payee. The maximum penalty for failing to make an election or keep records is $100. The penalty for willful or reckless misclassification is 15% of the compensation paid.

What does CHANGE IN CLASSIFICATION; PERIODIC CLASSIFICATION REVIEW. of 21st Century Worker Act do?

This section establishes procedures for changing the classification of service provider payees and service recipient payors. A 'major change' in the economic relationship occurs if there's a 25% or more increase or decrease in hours worked or compensation paid within a calendar quarter. Reclassifications resulting from a major change are effective starting the first day of the month following the determination. Changes in the economic relationship, other than major changes, can also trigger reclassification if a reasonable person would anticipate a change in classification. Examples of such changes include loss of a license, forfeiture of a business charter, changes in commission importance, or changes in exclusivity requirements. Reclassifications due to other changes are effective for the calendar quarter following the event. Annual periodic reviews are required for continuing economic relationships, to be completed by January 31. If a service provider payee works less than 100 hours or is compensated less than $10,000 in a calendar quarter, the requirements of this section are waived.

What does FAIR LABOR STANDARDS ACT OF 1938. of 21st Century Worker Act do?

This section amends the Fair Labor Standards Act of 1938. The definition of 'employer' is revised, referencing section 101 of the 21st Century Worker Act, with exceptions for labor organizations. The definition of 'employee' is also revised, referencing section 101 of the 21st Century Worker Act, with exceptions. The definition of 'employ' is modified to include a substantial economic relationship, as defined in section 101 of the 21st Century Worker Act. The definition of 'employment' is established as the provision of goods or services by an employee for an employer.

What does NATIONAL LABOR RELATIONS ACT. of 21st Century Worker Act do?

This section amends Section 2 of the National Labor Relations Act. The definition of 'employer' is modified to align with section 101 of the 21st Century Worker Act, with specific exceptions. The definition of 'employer' now includes any person acting as an agent of an employer. The definition of 'employer' excludes the United States, wholly owned government corporations, Federal Reserve Banks, state or political subdivisions, entities subject to the Railway Labor Act, labor organizations (unless acting as an employer), and officers or agents of labor organizations. The definition of 'employee' is also modified to align with section 101 of the 21st Century Worker Act. A new definition of 'employment' is added, meaning the provision of goods or services by an employee for an employer.

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21st Century Worker Act

Last updated: 3/5/2026 · Introduced: 3/5/2026

Author: Mike Lee (R-UT)

TL;DR (AI)

This bill establishes a classification system for service provider payees, categorizing them as either employees or independent contractors.
Service provider payees can elect their classification as either an employee or independent contractor, provided they follow specific written procedures and deadlines.
The bill defines criteria for mandatory employee classification, including the existence of a 'substantial economic relationship' and 'employment by agreement'.
The Fair Labor Standards Act and the National Labor Relations Act are amended to align their definitions of 'employee,' 'employer,' 'employ,' and 'employment' with the new definitions established in this Act.
The Internal Revenue Code is amended to define 'employee' and 'employer' based on the Act's definitions, impacting tax classifications.

119th Congressin committeeOfficial page

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Other Sections

Includes provisions on preamble, short title., and 6 more.

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TITLE II

-APPLICATION TO OTHER LAWS

4 sections

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