In early January 2021, the Trump administration created new employer-friendly regulations that would have made it easier (or at least clarified) for businesses to classify workers as independent contractors. This rule was due to go into effect on March 8, 2021. However, on March 12, 2021, the new Biden administration applied the brakes, announcing its intention to withdraw the regulation on independent contractors. On May 6, 2021, the Biden administration followed through and formally withdrew the settlement.
Before the now-overturned rule, the US Department of Labor and the courts used the “economic realities” test to analyze whether a worker was properly classified as an independent contractor. This test typically focused on six factors: (1) the degree of the employer’s right to control how the work is to be performed; (2) the possibility for the worker to realize profits or losses according to his management skills; (3) the worker’s investment in the equipment or materials necessary for his task, or the use of aids; (4) if the service rendered requires special skills; (5) the degree of permanence of the employment relationship; and (6) whether the service rendered is an integral part of the employer’s business.
The rescinded rule changed the economic realities test to put more emphasis on the degree of control over workers and the opportunities for workers to gain or lose. The remaining factors were still present but less significant. Now the DOL and the tribunal will come back to the analysis of all the factors and all of the circumstances.
What remains consistent through the back and forth is that analyzing the correct classification of workers requires a lot of facts. Businesses using independent contractors can run a considerable risk of legal action alleging misclassification and claiming overtime, taxes or other employment rights and benefits. Outdated rules also make it harder for businesses in the growing odd-job economy to properly classify workers as subcontractors.
For now, the rules are back to where they were before the Trump administration, but it may not stay that way. President Biden campaigned to make it more difficult for companies to circumvent employment laws by classifying workers as independent contractors, and proposed the implementation of more stringent regulations. The DOL also said it will enforce wage and hours laws more vigorously, including the imposition of (double) damages for almost all wage and hour violations.
Companies that classify workers as independent contractors should carefully analyze – with the help of a lawyer – whether they classify them correctly and, if not, take steps to remedy it before facing a DOL audit or review. collective action. They should also keep abreast of any new regulations implemented by the DOL, making it more difficult to use contract labor.