New rule will likely impact independent contractors

If you’ve been in this business for more than five minutes, you already know two things: 

1. Change is our only constant. 

2. Our sector is loaded with independent contractors, be they sales reps, service suppliers, designers, photographers, food service companies, showroom managers and the like.

I hear some of you saying, “Fine, tell us something we may not know.”

OK. Here goes. Beginning next month, every independent contractor in the United States is likely to be impacted by legislation that will become enforced on March 11 of this year.

Here’s the briefest of back stories. In January of this year, the Department of Labor released what it called the Final Rule which involves a series of guidelines set forth by the government to assess whether a worker is an employee or an independent contractor according to the Fair Labor Standards Act.

Prior to the implementation of the 2024 Rule, the DOL previously issued the 2021 Independent Contractor Rule under former President Donald Trump. 

According to most sources, Trump’s Independent Contractor Rule was viewed as a more business-friendly approach to the independent contractor standard — meaning that workers who owned their own businesses or are free to work for competing companies could be treated as contractors.

Now, the DOL’s new rule rescinds the prior 2021 independent contractor rule, which also considered a multifactor test to determine whether a worker was economically dependent on an employer, but gave greater consideration to two “core elements”: the nature and degree of control over the work, and the individual’s opportunity for profit and loss.

Also, Trump’s independent contractor rule also did not consider either a worker’s investment or whether the work was integral to the employer’s business as separate factors.

At press time, the  DOL’s new rule includes six factors, including whether the employment provides the worker with the chance to earn profits or incur losses depending on his or her management skills; the level of permanence of the relationship between the worker and employer; investments made by the worker and employer and whether or not those investments are to grow their own businesses; the level and degree of control over the business by the employer and whether or not the worker uses special skills and initiatives to perform the job.

The DOL notes that a worker is more likely to be an independent contractor when the “work relationship is definite in duration, nonexclusive, project-based or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.”

So, what happens next? Companies heavily reliant on independent contractors are being urged to worker classification audits using the framework provided in this new six-factor test.

In a statement issued by acting Labor Secretary Julie Su, she said, “Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protection.”

Those critical of the new law, however, argue that it will deprive workers of the flexibility they desire.

A number of lawmakers, including Rep. Senator Bill Cassidy from Louisiana, are already anxious to repeal the ruling.

He has been joined by Rep. Virginia Foxx (R-NC), chair of the House Education and the Workforce Committee, and Rep. Kevin Kiley (R-CA), chair of the House Workforce Protections Subcommittee.

Last month, they released a statement that said, “The modern economy is rapidly changing, and America’s workforce requires flexibility to thrive. The DOL’s rule is the polar opposite of flexibility. The livelihoods of independent contractors, app-based workers, freelancers and self-employed individuals will be completely destroyed. Working Americans should have the flexibility to earn a living as they see fit.”

Stay tuned. In the meantime, it might be a good idea to take a look at the Final Rule before March 11.

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