The DOL plans to change the definition of “independent contractor” – again. Read on to learn what the new independent contractor rules are and how they may impact you.
At Gardner Employment law we pride ourselves on keeping our clients informed. If you are concerned about how the proposed rules could impact you, contact us.
What would the DOL’s New Independent Contractor Rules do?
The DOL (“Department of Labor”) plans to return to the classic definition of independent contractor, contrary to the interpretation implemented by the previous administration. The concept of independent contractor seems to vacillate according to the political party in power. We covered the “basic control test” from the common law in our blog post titled “Independent Contractor vs Employee.” However, as we covered in a later blog, ongoing legal battles kept the Trump era definition of independent contractor in effect. The concept moved to the “economic reality” test. Under the Trump administration, the two key factors in defining an independent contractor were the nature and degree of control over the work, and the individual’s opportunity for profit or loss. While there were other factors to consider, those two had the greatest weight. The Trump era test was generally more favorable to classifying a worker as an independent contractor rather than an employee, which businesses supported.
The DOL’s new independent contractor rules would likely be more favorable to classifying a worker as an employee rather than an independent contractor. If the proposed rules do go into effect, there could be a major shift in the employment landscape. The DOL’s new independent contractor rules would focus equally on six core factors, which are:
|Opportunity for profit or loss depending on managerial skill.||Does the worker meaningfully negotiate the pay or charge for their work? If so, this leans towards independent contractor status.
Does the worker pick and choose when or how to do the job? If so, this also tends to prove independent contractor status.
|Investments by the worker and the employer.||Is the worker’s investment in the project entrepreneurial in nature? Again, if this is true, this supports independent contractor status.
What does the worker invest in the project compared to the employer’s investment? If the employer pays for tools, facilities, supplies, etc., these facts tend to show employee status.
|Degree of permanence of the work relationship.||Is the work relationship indefinite in duration or continuous? If so, it indicates employee status.
Is the working relationship definite in duration, non-exclusive or project-based? If so, it indicates an independent contractor is engaged on the project.
|Nature and degree of control.||Is the worker free to set their own schedule or work for others? A “yes” answer supports independent contractor.
Is there little or no supervision over the worker’s project or during work on the project? Again, this would indicate independent contractor status.
|Extent to which the work performed is an integral part of the employer’s business.||Is the work being done critical to the business? This is a factor tending to support employee status.|
|Skill and initiative.||Is the worker bringing his or her own specialized skills to the job? If the company hires an expert to come in and give an opinion, this would be an independent contractor.|
This new test, called the “totality of the circumstances test,” weighs all of these core factors equally when determining whether a worker is an independent contractor or an employee. The analysis requires asking and answering various questions, and whether the worker is an employee or independent contractor depends on the facts. If the answers to the above questions tends to show that the worker is an employee, the employer cannot convert the worker by simply using the label “independent contractor.” You have heard the old saying, “If it quacks like a duck, waddles like a duck, it is probably a . . . . ”
How would the New Independent Contractor Rules Impact Workers?
Workers who already are employed as employees would likely see no change. The change will affect workers who currently are considered independent contractors. They may find themselves becoming “employees” if the new independent contractor rules go into effect. For many workers, this change will be beneficial. Being an employee carries rights such as the right to collective bargaining and the right to receive the same types of benefits as other similarly situated employees. Also, in this country most employers provide employees benefits such as health insurance, paid vacation days, sick pay, and the like. Independent contractors do not receive any such benefits.
One reason why the current administration sought to change the independent contractor rules was because of a belief that many employers were misclassifying their employees as independent contractors. An employee incorrectly having independent contractor status has big implications when it comes to taxes and protections in the workplace. When the rules are unclear or lax in enforcement, some unscrupulous employers will attempt to avoid paying taxes or providing benefits by calling workers “independent contractors.”
Employees should take note of the these concerns about misclassification. It does happen. If you are classified as an independent contractor but you are treated as an employee, you may want to contact an employment lawyer who is an expert in this area.
How Would the New Independent Contractor Rules impact Employers?
Employers will need to exercise diligence in how they classify their workers. Some employers may have inadvertently classified workers as independent contractors who will become employees if the new DOL rules go into effect. Some commentators, like a writer with The Hill, believe that the new independent contractor rules will negatively impact employers. If a company or small business suddenly sees many of their independent contractors become employees, there will many changes associated with the new DOL rule. Employers are required to pay FICA (Federal Insurance Contributions Act) taxes, Medicare, contributions to Texas’ workers unemployment benefits fund, and other employee costs. Being an independent contractor means that the worker manages his or her own business and pay the costs required by running that business. With my clients, I use the example of hiring a roofing company to put a new roof on your house. You may know the end result of the type roof you want, but you do not instruct the roofer as to which nails to use, how the roofing company’s people should place their ladders in safe locations, or what they are to do once they are on the roof of your house. The roofer is an independent contractor.
While the new independent contractor rules may impact traditional businesses that have not been concerned about these classifications, the new “gig economy” will likely be affected. This is because companies in this industry, such as Uber, Lyft and Doordash, already occupy a gray area. Are the people who drive their own vehicles using a software program independent contractors or employees of the company providing them the software? That is a difficult answer. The new DOL rules may cause this workforce, typically classified as independent contractors, to become employees under the new rules. Again, it depends on the facts and the answers to analytical questions.
Learning More About the Independent Contractor Rules
If you are concerned about how the new DOL rules regarding independent contractors will impact you or your business, we would be happy to discuss the new rules further with you.