The U.S. Department of Labor (DOL) has issued a new rule proposal that would significantly alter how employers nationwide can classify workers as independent contractors or employees. The proposed rule is anticipated to go into effect in some form within the next year and will restrict the definition of independent contracts much more heavily than is currently the case. When it does, it will impact most employers who work with contractors in some form.
The proposal was made in response to the proliferation of “gig economy” businesses, spearheaded by companies like Uber, DoorDash, and TaskRabbit. These companies have accrued massive workforces consisting entirely of independent contractors who do not receive benefits or protections like standard employees. The DOL has determined that this violates these workers’ rights and proposed changes to prevent organizations from misclassifying employees.
The rule will affect far more than just gig economy companies, however. The new, stricter definition for independent contractors may require employers nationwide to rework their employment structures or risk significant penalties.
Current Status of Independent Contractors in Florida
The Internal Revenue Service (IRS) is currently responsible for defining independent contractors. Under IRS regulations, a worker may only be classified as a contractor if they have the legal right to determine how and when they perform their work, not the employer.
This was originally intended to provide freedom for workers who wanted to form their own businesses performing a specific service for multiple clients. For example, a freelance writer might benefit from being a contractor because they can choose their clients, when they work, and how the work gets done as long as they provide the result promised in their contract.
Many companies prefer to hire contractors vs. employees because of the simplicity of the process. Contractors are paid hourly or by project and are not eligible to receive overtime pay, paid time off, or health insurance benefits unless their contract requires it. This makes contractors less expensive in many cases than traditional employees.
Today, gig workers may also be classified as contractors under this law because they can decide whether to work and where they work. However, the DOL has determined that this violates the spirit of the classification because these workers cannot often work for multiple employers and face significant restrictions on their behavior and hours.
Impact of Potential Updates to Independent Contractor Definitions
The proposed rule would significantly expand the requirements of classifying someone as a contractor rather than an employee. Employers would need to demonstrate that the working relationship meets six criteria or classify a worker as an employee:
- The work performed by the worker may not be an integral part of the employer’s business; a window cleaner may be a contractor, but an Uber driver would not.
- The relationship between the employer and worker should not be a permanent one or the worker’s primary or sole source of income.
- The worker can earn more or less from their work due to their skill; they should be able to make more if they are particularly talented.
- The worker has made personal investments in their business, such as creating a company or purchasing specialized equipment.
- The worker’s role requires specialized skills or initiative to succeed, such as pitching to new clients or getting independent certifications.
- The employer may not have extensive control over the worker’s daily tasks.
If an employment relationship does not meet all six criteria, the employer will need to classify the worker as an employee, providing them with benefits and protections under federal law.
This could significantly increase the cost of business for any company relying on contractors instead of employees. It may also subject small businesses to new restrictions, as federal laws like Title VII of the Civil Rights Act only apply to employers with 15 or more employees. Requiring the reclassification of contractors as employees will cause many businesses’ acknowledged workforces to grow beyond these limits, requiring more careful adherence to federal employment law.
Preparing for Changes to Contractor Regulations
While the DOL proposal has not been finalized, it was announced in the Federal Register, and the comment period has already closed. The agency is reviewing comments it has received and will likely implement some form of the changes in the next year. Employers should begin preparing for the possible changes today to ensure their businesses are ready for the bill’s impacts.If you employ independent contractors in Florida, you can start the process by consulting with the expert employment attorneys at EPGD Business Law. Our proven lawyers have decades of experience assisting employers with changing employment laws at the federal and state level. We are available to help you review and revise your employment procedures to account for changing independent contractor definitions. Schedule your consultation today to learn how we can assist you should independent contractor classifications be updated.