Recently, the U.S. Department of Labor (DOL) issued a proposed rule that rescinds our current understanding of how to classify independent contractors vs. employees under the Fair Labor Standards Act (FLSA). While the rule is not yet law, it is likely to take effect in 2023.
The changing of this rule proposes to rescind the 2021 Independent Contractor Rule. This would widen the scope of the “economic realities test” used to determine if someone is an employee or an independent contractor. Ultimately this will make it harder for workers to be classified as independent contractors and will instead make more people currently working as contractors into employees.
Seven Factors for Consideration
With the changing of the rule, deciding if a worker is an independent contractor or employee will require analyzing each of the following seven factors equally, with no weight given to any factor.
- Opportunity for Profit or Loss Depending on Managerial Skill: This factor seeks to find if the worker uses managerial skills that impacts the worker’s economic success or failure in performing the work.
- Investments by the Worker and the Employer: This factor covers any entrepreneurial investments made in the work by the worker.
- Degree of Permanence of the Work Relationship: This factor will side with a worker being an employee if the working relationship is considered permanent, or continuous.
- Nature and Degree of Control: This factor will side with a worker being an employee if the employer is setting the worker’s schedule, supervising their performance or is limiting the ability of the worker to work for other businesses.
- The Extent to Which the Work Performed is an Integral Part of the Employer’s Business: If a worker’s performance is integral to the employer’s business they are more likely to be an employee.
- Skill and Initiative: This factor analyzes if a worker is using a specialized skill to perform their work. A worker is more likely to be an employee if they do NOT use specialized skills to perform their work, or specialized skills are dependent on training from the employer in order to perform their work.
- Additional Factors: Only factors that are relevant to the overall question of economic dependence or independence should be considered.
Impacts On Workers
With the actualization of this rule, many workers who are currently considered independent contractors will be considered employees instead. This would result in a disruption in an already tense labor market, where we are currently seeing 10 million job openings unfulfilled.
Many independent contractors are speaking out against this rule that would reclassify them as employees. While some reclassified employees would gain worker protections they do not currently get, some may also find themselves unemployed due to the higher cost for companies to hire employees over contractors.
Transcendent Law Group will keep you up to date on how this and any other employment laws will impact your business. Contact us today for more information.