This bill creates a new federal framework for classifying workers as either employees or independent contractors. Instead of leaving this decision to courts or agencies using various tests, the 21st Century Worker Act sets up clear categories that determine a worker's status automatically based on their specific situation.

The bill divides workers into three groups. First, certain workers are automatically independent contractors—this includes licensed professionals (like doctors or lawyers), business entities, people who work less than 30 days per quarter, direct salespeople, sole proprietors with written contracts, and formal contractors. Second, some workers are automatically employees—specifically those in "substantial economic relationships" (meaning they work full-time or nearly full-time, the company controls their hours, and most of their pay is based on time worked) or those who have explicit employment agreements with their companies.

For everyone else who doesn't fit these two categories, workers and companies can choose together whether the worker should be classified as an employee or independent contractor. This choice must be made in writing within 14 days of starting work, and both parties must sign off on it. The bill then applies these same definitions to federal tax law, labor law, and workplace protection laws so there's consistency across the board. It also requires a government study to identify other federal laws that might need updating to match these new definitions.