The DOL Has Proposed a Rule Change for Independent Contractors

As an employer, what should you know about the proposed rule change?

The proposed rule change for independent contractors would alter how employers classify a worker as an independent contractor versus an employee.

The 2021 IC Rule Used by the Department of Labor (DOL)

The 2021 IC Rule used by the DOL considered five factors to determine an independent contractor’s classification. The factors were:

  • Employer’s degree of control over the work
  • Worker’s opportunity for profit or loss
  • Amount of skill required for the work
  • Degree of permanence of the working relationship between the worker and employer
  • Whether the work is part of an integrated unit of production

The first two factors (employer’s degree of control over the work and worker’s opportunity for profit or loss) were “core factors.” They carried greater weight in the independent contractor analysis than the other three factors. Based on the two core factors, there was a substantial likelihood that the worker’s classification would be independent contractor or an employee.

How does the current classification compare with the proposed change?

The current classification approach to the analysis made it easier for employers to determine classification. The new proposed change will make it more difficult for employers. The new proposed change uses a totality-of-the-circumstances analysis rather than giving the two “core factors” more weight. In the totality-of-the-circumstances analysis, the five factors do not have a pre-determined weight. The rationale behind the proposed change is to eliminate misclassification. Misclassification denies workers federal protections such as minimum wage, overtime pay, insurance and other benefits.

By comparison, independent contractors do not receive benefits, but they are able to experience more schedule flexibility. They can also work for multiple companies.

The new rule could change the outcome. For example, one factor considers exclusivity or permanence as an employee rather than independent contractor characteristic. However, having multiple jobs does not necessarily favor the contractor classification.

What are arguments against the proposed rule change for independent contractors?

The change would affect the gig economy the most: businesses such as ride-share, delivery, and other companies that rely on independent contractors. According to the National Retail Federation as quoted in Society for Human Resources Management (SHRM) , the current rules provide “legal certainty for employers, employees and independent contractors alike.” Furthermore, “the changes being proposed by the Labor Department will significantly increase costs for businesses across all industries and further drive already-rampant inflation.”

As an employer, do you have legal concerns about independent contractor classification?

If you have questions about how independent contractor classification affects your business, arrange a consultation with an experienced employment defense lawyer. Call Stephen D. Hans & Associates, P.C. at (718) 275-6500.