Last week, the U.S. DOL published a Notice of Proposed Rulemaking which will change the classification of many independent contractors to employees. If the proposed rule is passed, fewer workers will be able to be independent contractors.
Secretary of Labor Marty Walsh said the rule is designed to protect our “nation’s most vulnerable workers.” She mentioned nothing about how the rule will impose significant extra costs on employers. Misclassification will most severely require HR departments to reassess wage requirements, recordkeeping, overtime pay, and benefits under the FLSA.
The proposed rule will particularly reduce the availability of independent contractors for small businesses, as well as workers in the gig economy and transportation, driver delivery, health care, construction, home care, landscaping, janitorial, professional, personal, and business services, and hospitality industries.
The new rule focuses more on the worker’s economic dependence on a business, and considers the six factors for the economic reality test:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the employer’s business; and
- Skill and initiative of workers
Should the new rule pass, employers are well advised to consult with employment counsel to adjust current classifications between employees and independent contractors.