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DOL proposes change to independent contractor definition

The U.S. Department of Labor (DOL) has issued a notice of proposed rulemaking related to classifying employees as independent contractors.

The change could result in more workers being classified as employees and therefore entitled to certain federal protections such as minimum wage, workers’ compensation and overtime pay.

The rules would effectively undo a Trump administration rule that took effect in January 2021. That rule uses an “economic reality test” that depends largely on two core factors – control over work and the opportunity for profit or loss. Other factors could be taken into consideration but were given less weight.

Now the DOL has proposed returning to a “totality of the circumstances” evaluation in which applicable factors do not have a predetermined weight.

Additional factors can include:

  • Permanence of the work relationship
  • The worker’s investment in equipment or materials required for the task
  • Whether the work is an integral part of the employer’s business
  • Worker skill and initiative

Analysts have said the proposed rule will have the biggest impact on ride-hailing and delivery services that rely on gig workers.

However, statements from both Uber and Lyft imply that the change is merely a return to the status quo and won’t dramatically impact their business models.

In advance of an expected 2023 effective date, businesses should review contract language in which they “reserve the right” to control aspects of a contractor’s work.

Under the proposed rules, such language could constitute an employee relationship, even if you don’t actually exercise that control.

Interested parties have until Nov. 28, 2022, to submit comments on the proposed rules.