In the coming months, many employers and workers could see shifts in employee classification. Recently, the Department of Labor (DOL) proposed a new framework to determine whether someone is an employee or an independent contractor.
What could be changing?
According to a statement from the DOL, the federal agency is proposing new factors to classify workers as employees or independent contractors. Specifically, the new test would require parties to consider:
- The degree of control an employer has over its workers
- The degree of permanence of the work relationship
- The worker’s opportunity for profit and investment
- The amount of skill and initiative required to perform the work
- Whether the work is an integral part of the employer’s business
These factors would be considered in addition to those traditionally used, including:
- Who provides job-related tools
- Who controls where the party works
- Which party has control over the manner of performance
- Who and under what terms can someone discharge the worker
- How the worker is paid
The multi-factor test would help determine whether a worker is an employee or an independent contractor. By adding more measures, the DOL proposal would lower the bar for classifying workers as employees.
Why does this matter?
If adopted, the DOL proposal would allow millions of workers currently classified as independent contractors to be reclassified as employees. This is important because there are significant differences in how the laws and employers treat workers based on classification.
For instance, as discussed in a previous post about misclassification, employees have rights to benefits and programs such as workers’ compensation and job-protected leave that are unavailable to independent contractors. Workers’ tax obligations and rights regarding minimum wage and overtime pay are also different depending on a person’s classification.
Does anything change right away?
This is still a proposal and is subject to changes and legal challenges If the proposal advances through the comments period, the agency will evaluate any feedback it receives and finalize the rule. Although the final rule may differ from the current proposal and may not be implemented for some time, employers would be wise to review their policies and prepare to make any necessary changes if the DOL moves forward with the current proposal.
Independent contractors and companies who use them should monitor this proposal. If the proposal is adopted, legal guidance and support will be crucial to ensure compliance with the new regulations.