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New Law on Independent Contractors

1 June, 2021

The Biden administration has rescinded a ruling passed by the Trump administration that would have changed the criteria for classification of workers as employees vs. independent contractors. Observers state that the previous administration ruling, had it gone into effect, would have made it easier to classify workers as independent contractors, but that business owners should continue to use the current classification standards to avoid penalties.

“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said U.S. Secretary of Labor Marty Walsh. “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors. We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”

While no one factor will determine an employee’s classification, the Department of Labor definition takes the following criteria into account:

  • The extent to which the worker’s services are an integral part of the employer’s business, for example hiring a painter to work for a painting company, or as a supervisor for other employees.
  • The permanency of the relationship, for example how long has the worker worked for the same company?
  • The amount of the worker's investment in facilities and equipment, for example is the worker reimbursed for any purchases of materials and supplies? Does the worker use his or her own tools or equipment?
  • The nature and degree of control by the principal, for example, who decides on what hours to be worked and sets the pay rate?
  • The worker's opportunities for profit and loss, for example: can the worker earn a profit by performing the job more efficiently or exercising managerial skill or suffer a loss of capital investment?

The DOL also predicts that the withdrawal of the new proposed rule will continue to allow more workers access to benefits such as unemployment and workers compensation as well as fringe benefits from companies that offer health insurance and retirement programs.

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