Submitted by Bob Dunlevey of Taft/Law
You probably heard that the Department of Labor passed new regulations making it easier for employers to classify workers as independent contractors – good news for employers. Over the years, several different standards have been used by various state and federal agencies to determine whether a worker is a true independent contractor or actually an employee subject to a myriad of laws and taxes. Employers, however, during the same period, have taken many liberties with classifying employees as independent contractors in an effort to escape paying for overtime, benefits, and payroll taxes.
Just when the Trump era DOL promulgated a more employer friendly definition of independent contractor to become effective March 8, 2021, the Biden Administration, in its first days, took action to freeze this pending regulation and many other rules. The President’s Order advises agencies to “consider postponing the rules’ effective date for 60 days” from January 20, 2021 and to assess whether to open a 30 day public comment period on any delayed rules. The “freeze” affects DOL’s tipped worker rules, immigration and Visa regulations, revised EEOC procedures, and NLRB regulations – all considered to be pro-employer. President Biden strongly supports legislation and regulatory proposals that significantly enhance employee and union rights, an increase in minimum wage to $15 and more workplace anti-discrimination prohibitions.
So, the takeaway here is that employers should not be quick to change their policies and practices on the assumption that these various laws and regulations are actually going to come to fruition.
Trump’s new independent contractor criteria under the Fair Labor Standards Act adopts the “economic realities” test. The economic realities test categorizes two of five criteria as “core factors” given greater weight – 1) the nature and degree of the worker’s control over the work; and 2) the worker’s opportunity for profit or loss. The remaining three factors – 1) amount of skill required for the work; 2) the degree of permanence of the working relationship between the parties; and 3) whether the work is part of the regular work of the business. The new rule would also allow employers to provide certain benefits to independent contractors much like employee benefits. These new regulations would substantially impact Gig workers, construction workers, seasonal hospitality workers, and truck drivers.
If the regulations do become effective, employers must remember that many states have their own independent contractor regulations and certain federal agencies do as well. In fact, the standard used by the IRS is quite onerous.
More than likely, the Biden Administration will opt for the “ABC” test that presumes the worker is not an independent contractor unless the employee is free from control by the employer, works outside the employer’s usual course of business, and is customarily engaged in an independent business. This would convert more Gig workers to true employees and entitle them to benefits and the protections of various discrimination and other employment laws.
Labor and employment law developments are coming out of Washington fast and furiously. Stay tuned for a wild ride during the months to come!
If you need assistance in dealing with these and other labor and employment law issues, contact Bob Dunlevey, Board Certified Specialist in Labor and Employment Law, at (937) 641-1743 at Taft/Law.