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Department of Labor Announces Final Rule on Classifying Workers as Employees or Independent Contractors
WASHINGTON – The US Department of Labor today announced a final rule to help employers and workers better understand when a worker qualifies as an employee and when they may be considered an independent contractor under the Fair Labor Standards Act.
The rule provides guidance on proper classification and seeks to combat employee misclassification, a serious problem that impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy at-large.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” explained Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
Judicial Precident
The rule separately rescinds the 2021 Independent Contractor Rule that the department believes is not consistent with the law.
The new guidance aligns with longstanding judicial precedent on which employers have previously relied to determine a worker’s status as either an employee or independent contractor. The new rule will preserve essential worker rights and provide consistency for entities covered by the Fair Labor Standards Act.The new “independent contractor” rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.
The rule addresses six factors that guide the analysis of a worker’s relationship with an employer, including:
- Any opportunity for profit or loss a worker might have
- The financial stake and nature of any resources a worker has invested in the work
- The degree of permanence of the work relationship
- The degree of control an employer has over the person’s work
- Whether the work the person does is essential to the employer’s business
- A factor regarding the worker’s skill and initiative.
In crafting the new rule, the department’s Wage and Hour Division considered feedback provided by stakeholders at forums in the summer of 2022 and during the comment period after the proposal’s announcement in October 2022. The final rule takes effect on March 11, 2024.
Statement from ABC
Associated Builders and Contractors—a strong supporter of the 2021 final rule—released a statement from Vice President of Regulatory, Labor and State Affairs Ben Brubeck opposing the new final rule.
“By undermining the flexible, independent work for millions of Americans, President Joe Biden’s DOL is choosing to move forward with a final rule that creates an ambiguous and difficult-to-interpret standard for determining independent contractor status," Brubeck said. “Under the rule’s multifactor test, employers will now be forced to guess which factors should be given the greatest weight in making the determination. Instead of promoting much-needed economic growth and protecting legitimate independent contractors, the final rule will result in more confusion and expensive, time-consuming, unnecessary and often frivolous litigation, as both employers and workers will not understand who qualifies as an independent contractor.
“Regrettably, the confusion and uncertainty resulting from the final rule will cause workers who have long been properly classified as independent contractors in the construction industry to lose opportunities for work.”
Statement from the UA
In marked contrast, United Association of Union Plumbers and Pipefitters (UA) General President Mark McManus praised the final rule as a strong step to protecting fair wages for all workers.
“When President Trump made it easier to misclassify workers, unscrupulous contractors took full advantage and paid their workers less than they deserved," McManus said. "Today’s action rescinds that anti-worker rule and ensures that all Americans have the labor protections they deserve, including fair wages, safe jobsites, and quality healthcare.
“The final rule from the Biden Administration and the U.S. Department of Labor will restore the age-old criteria for determining whether a worker is an employee or an independent contractor. Simply put: this rule will ensure the basic rights of all workers, consistent with the Fair Labor Standards Act.”