The U.S. Department of Labor (DOL) has finalized its new independent contractor rule,
with big implications for small businesses.
The new regulation, which would make it more difficult for companies to classify workers
as independent contractors, has been opposed by numerous small business groups,
arguing that it doesn’t fit with today’s gig economy, and that it makes compliance even
more burdensome.
Proponents say businesses sometimes misclassify workers as independent contractors,
when they should be employees, denying them benefits and legal protections.
According to National Small Business Association President and CEO Todd McCracken,
“The previous 2021 rule that DOL has rescinded was a simple, clear, and effective
solution to worker classification problems. Unfortunately, this new far-reaching standard
threatens to muddy the water and make contracting relationships difficult both for small
businesses employing contractors, and for the independent contractors themselves.”
The new regulation uses six factors to determine whether a worker is truly self-
employed, whereas the old regulation had just a couple of core factors.
These six factors, none of which are singularly decisive in determining the classification
of the worker, are:
– Opportunity for Profit or Loss Depending on Managerial Skill
– Investments by the Worker and the Potential 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 Potential
Employer’s Business
– Skill and Initiative
Misclassifying employees as independent contractors can result in lawsuits and
penalties, among other costs.
For more information, go to the DOL’s Small Entity Compliance Guide on the new rule:
https://www.dol.gov/agencies/whd/government-contracts/small-entity-compliance-guide.